The British Pound gained over 0.68% during the North American session, climbing to 1.3417 against the US Dollar. This rise came after the Federal Reserve cut rates by 25 basis points and a less-than-expected US jobs report weakened the Dollar. On Thursday, the Pound traded near a new seven-week high against the Dollar at around 1.3400. Even with the Fed’s rate cut, the US Dollar struggled to bounce back, keeping the GBP/USD pair in a strong position.

US Dollar Rebounds

Early Thursday, the Pound dipped, trading around 1.3365 as the US Dollar recovered. However, the potential for further declines seemed limited as traders monitored the upcoming US weekly Initial Jobless Claims report. In other markets, the Dow Jones surged 650 points, and Gold rose above $4,270, reflecting the Dollar’s weakness after the Fed’s rate cut. Other currencies, such as the Euro and New Zealand Dollar, also gained strength as the US Dollar declined. Despite these changes, traders remained cautious, waiting for more economic data and possible rate adjustments. This information is for informational purposes only, so individuals should make their own investment decisions after careful research.

Federal Reserve Rate Cut Implications

The Federal Reserve’s rate cut, along with weak economic signals from the US, sets the stage for the coming days. Initial jobless claims came in at 245,000, much higher than expected, indicating the Dollar’s weakness may continue. This opens an opportunity to position for further declines in the DXY index. For GBP/USD, it would be wise to use options strategies that benefit from a move towards 1.3500 in the short term. However, we need to stay alert for the upcoming Bank of England interest rate decision next week. Given that UK inflation data from last month remained steady at 3.1%, any reluctance from the BoE to align with the Fed’s approach could quickly stop the Pound’s rise. We are witnessing a general weakness in the US Dollar, which is pushing up assets like gold, moving past $4,270. Looking back at similar shifts from central banks, like in late 2023, markets often become complacent after the first rate cut. With the VIX index currently low at around 13.5, it may be wise to buy inexpensive options through straddles on major indices to hedge against unexpected data in the coming weeks. It’s important not to overlook the “hawkish” aspect of this Fed rate cut, reminiscent of mid-cycle adjustments in 2019. This suggests that further rate cuts are not assured, and the Dollar could find stability sooner than anticipated. Therefore, any long positions against the USD should be managed with tight stop-losses or hedged using derivatives. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now