Pound US Dollar (GBP/USD) Exchange Rate Continues Up on Central Bank Sentiment

Pound US Dollar (GBP/USD) Exchange Rate Climbs Higher Despite Positive US Jobs Data

(Updated 16:00, 9/09/2021) The Pound (GBP) continued to climb against the US Dollar (USD) through today’s session, as Federal Reserve tapering uncertainty weighed upon USD and a slight risk-on mood turned sentiment against the safe-haven currency.

According to analyst Monica Kingsley, either the Fed tapers before Dec – which would mean all-but immediate action – or it will defer until 2022, in which case the downswing catalyst would be inflation. Analysts also predict ‘seasonal’ market volatility in September, which could enforce further downside pressure.

Some sources have focused this afternoon on the commentary of Atlanta Fed President Raphael Bostic, who remarked yesterday that the central bank is unlikely to decide on cutting bond purchases at the FOMC meeting this month. Bostic argues that recent economic data and the spread of the Covid delta variant advise against immediate action.

However, he still hopes to see tapering introduced before the year’s end. Broadcasting on multiple media channels, Bostic said ‘the weaker data that we’ve seen more recently suggests to me that maybe there’s a chance for some play on this, but I still think that [tapering] sometime this year is going to be appropriate.’

Original article continues below:

Pound US Dollar Exchange Rate Firms as BoE Officials Confirm Tapering Expectations

The Pound US Dollar (GBP/USD) exchange rate has risen this morning as comments from almost all members of the Bank of England (BoE)’s Monetary Policy Committee (MPC) suggest that the UK is set to reduce its asset purchasing as well as lining up rate increases in the coming year.

At the time of writing, GBP/USD is trading at $1.3803, up 0.3% from today’s opening levels.

Pound (GBP) Trends Up on Trading Optimism

The Pound (GBP) has risen against the majority of its peers today as trading sentiment is bolstered by optimistic comments from BoE officials. In his Annual Report for the Treasury Select Committee, published yesterday, Deputy Governor Dave Ramden confirmed that the MPC now intends to begin to reduce the stock of purchased assets.

The report detailed the central bank’s policy decisions throughout the Covid-19 pandemic, beginning with the deployment of policy tools in March 2020. Ramden went on to say:

‘The economic news since November has been generally positive. Activity has been stronger than we expected, with Covid restrictions being eased slightly earlier than expected, partly due to the success of the vaccination programme in the UK.’

His hawkish tone is reflected in the report of Professor Silvana Tenreyo, an external member of the MPC. While Tenreyo stresses the impact of the Covid Delta variant on case numbers and the economy, she agrees that a recent rise in inflation is likely to be temporary and that policy tightening will be imminently necessary.

Prof. Tenreyo states that ‘with a negative Bank Rate now available as a loosening instrument, it should be possible to begin unwinding QE earlier, while still maintaining Bank Rate as the active policy instrument.’

US Dollar (USD) Tumbles on Low Treasury Yields, Dissatisfied Workers

Despite earlier gains as a result of prevailing risk aversion, the US Dollar (USD) has fallen against the majority of its peers in today’s session, as low treasury yields depress and US employers struggle to find staff.

This morning’s risk-off impulse in the markets dragged US treasury bond yields lower and subsequently exerted some pressure on the ‘Greenback’.

Movements in Treasury yields can be partly driven by comments from Federal Reserve officials: as New York’s John Williams said yesterday that more progress is needed in the labour market to achieve ‘substantial further progress’, investors may have withdrawn support on his dovish tone.

Meanwhile, data released by the US Bureau of Labor Statistics on Wednesday revealed a steady increase in the number of workers voluntarily quitting their jobs, suggesting that a sharp slowdown in August’s hiring was due to employers being unable to find workers.

According to an American news source, the recent surge in Covid-19 infections, driven by the delta variant, is disrupting some schools’ reopening plans and dissuading unemployed individuals from renewing their job searches.   

GBP/USD Exchange Rate Forecast: USD Gains Capped by Mixed Data?

Looking to the remainder of the day, US jobless claims are set to print this afternoon, preceding two speeches from Fed officials. If joblessness goes down as expected, the US Dollar may find support.

A clutch of UK data tomorrow could damped GBP sentiment, however – buoying the US Dollar in comparison. The UK’s GDP 3-Month Average is set to drop on last month, along with industrial and manufacturing production figures, reflecting recent supply chain concerns.

Olivia Evershed

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