Pound US Dollar Exchange Rate Soars as Investors Start to Price in BoE Rate Hike for Early 2022

GBP/USD Exchange Rate Jumps Back Above $1.37 on Hawkish BoE Message 

(Updated 13:15, 23/9/21) The Pound US Dollar (GBP/USD) exchange rate is rallying this afternoon, with the pairing having leapt around 0.7% from this morning’s opening rate in the wake of the Bank of England’s latest interest rate decision. 

While the bank opted to leave interest rates unchanged this month, GBP investors seized on the bank’s comments suggesting that the recent jump in inflation have ‘strengthened’ the case for a modest tightening of monetary policy. 

This was largely interpreted as a signal that the BoE may start raising interest rates earlier than previously expected to help keep inflation in check, with the Pound US Dollar exchange rate soaring roughly half a cent as investors begin to price in a potential rate hike as soon as March 2022. 

Original article continues below: 

Pound US Dollar Exchange Rate Buoyed ahead of BoE Rate Decision 

The Pound US Dollar (GBP/USD) exchange rate is ticking higher this morning, as investors brace for the conclusion of the Bank of England’s (BoE) latest policy meeting at noon. 

At the time of writing the GBP/USD exchange rate is trading at around $1.3667, up 0.3% from this morning’s opening rate. 

Pound (GBP) to Slump on Cautious BoE Outlook? 

The Pound (GBP) is on shaky ground this morning, as while the currency is appreciating against the US Dollar (USD) it is struggling to replicate this success against most of its other peers ahead of the Bank of England’s latest interest rate decision. 

The BoE is widely expected to leave monetary policy untouched this month, placing the focus on the bank’s forward guidance.  

This could see the Pound come under pressures later this afternoon, with analysts believing that the current headwinds facing the UK economy will result in a more cautious outlook from the Monetary Policy Committee (MPC). 

Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, comments: 

‘There has been a bang crash wallop of troubling economic signs this week, which may keep tensions high round the table at Bank of England’s monetary policy committee today. 

‘Although it increasingly looks like inflation will linger for longer, most committee members are still likely to sit firmly on their hands and play a waiting game until well into next year, even when it comes to rolling back the mass bond buying stimulus programme.’ 

Also limiting the upside potential of the Pound this morning is the release of the UK’s latest PMI figures, which revealed activity in the private sector slowed to a 7-month low in September. 

US Dollar (USD) Sheds Post-Fed Gains 

The US Dollar (USD), meanwhile, is trending lower this morning, having shed some of the gains made in the wake of the Federal Reserve’s rate decision yesterday evening. 

USD exchange rates rallied on Wednesday after the Fed made its strongest hints yet that it will begin tapering its bond purchases later this year, with Fed Chair Jerome Powell suggesting that ‘a moderation in the pace of asset purchases may soon be warranted’. 

In spite of Powell also signaling that the tapering process could be wrapped up by mid-2022, earlier than economists had previously expected, the US Dollar walked back some of its gains overnight as some analysts raised doubts over the Fed’s plans, at a time when the US economy is likely to be slowing. 

Pound US Dollar Forecast: Powell Speech to Offer Fresh Direction to GBP/USD at the End of the Week? 

Looking past the BoE’s rate decision to end of this week, a speech by the Fed’s Powell is likely to act as the main catalyst of movement in the Pound US Dollar exchange rate. 

Powell is unlikely to drop any bombshells so soon after Wednesday’s rate decision, but he may offer a little more insight into the Fed’s tapering plans, and help provide fresh direction for the US Dollar. 

Meanwhile, with concerns over the UK’s economic resilience continuing to grow, the Pound is likely to see limited upside potential through the end of the week.