Pound US Dollar (GBP/USD) Exchange Rate Continues Climbing to Hit One-Month High

Pound US Dollar (GBP/USD) Extends Gains amid Risk-On Trade

(Updated 15:15, 15/10/21) The Pound US Dollar (GBP/USD) exchange rate has continued to climb this afternoon, reaching a one-month high of $1.376.

The upside comes as the market mood remains upbeat, supporting Sterling and putting pressure on the safe-haven US Dollar (USD), thanks in part to an unexpected rise in US retail sales.

Domestic sales in America rose by 0.7% in September, beating forecasts of a 0.2% contraction.

This positive data follows yesterday’s strong US jobless claims report and better-than-expected third-quarter results from US banks. With the world’s largest economy in a seemingly strong position, global appetite for risk is increasing.

Original article continues below:

Pound US Dollar (GBP/USD) Exchange Rate Strengthens amid Hopeful Mood

The Pound US Dollar (GBP/USD) exchange rate has hit a three-week high today, as optimism over the Northern Ireland protocol and a potential supply chain solution boost Sterling.

The US Dollar (USD), on the other hand, is struggling to find support amid a risk-on market mood.

Pound (GBP) Firms on Renewed UK Optimism

The Pound (GBP) has gained against the US Dollar this morning, as a bullish market mood favours the risk-sensitive Pound over the safe-haven ‘Greenback’.

In addition, optimism over Brexit and the UK’s supply chain issues could be supporting Sterling.

The UK government has announced plans to extend cabotage rights for foreign hauliers. Under the proposed change, hauliers from the EU would be allowed to make unlimited journeys for two weeks while in the UK. At the moment, foreign operators can only make two trips within seven days.

The government says the change would last up to six months and would enable thousands more deliveries each month, bolstering UK supply chains and tackling the backlog at ports.

While the measures have faced fierce resistance from UK hauliers, who fear it will flood the market with cheap labour and undercut British drivers, they could be easing investors’ concerns over the country’s supply chain crisis.

Additionally, the UK Brexit Minister Lord Frost is travelling to Brussels today to meet with his EU counterpart Maroš Šefčovič. The two will begin talks on the Northern Ireland protocol in another attempt to break the deadlock.

The meeting follows a new offer from the EU which significantly reduces checks, administrative paperwork and disruption, with many hoping that the concessions will form a basis for an agreement to finally be reached.

While there are certainly still thorny issues, both sides seem to be going into the talks with positive attitudes. Lord Frost has said that he will enter negotiations without any ‘red lines’, while Šefčovič commented:

‘I hope with a constructive spirit we indeed could be in the home stretch, and I would be very happy if we can start the new year with new agreements’.

With high hopes that the UK’s supply chain disruption will ease and Brexit talks could prove productive, GBP is strengthening today.

US Dollar (USD) Dented by Cheery Market Mood

Meanwhile, the US Dollar is facing some selling pressure this morning as a risk-on market mood dampens the appeal of the safe-haven currency.

Yesterday’s jobless claims data contributed to the upbeat outlook among investors by beating expectations. New unemployment benefits in the US printed at 293,000 last week, below expectations of 319,000. This was the lowest number of weekly jobless claims since the pandemic hit the US in March 2020.

The market mood was also lifted after US banks posted stronger-than-expected results for the third quarter of this year. Victoria Scholar, Head of Investment at Interactive Investor, explains:

‘The boom in M&A and IPO activity helped drive a surge in investment banking revenue, offsetting higher costs from technology and wages. Morgan Stanley reported record IB revenues in the third quarter, up 67% to $2.85bn.

‘Better-than-expected loan losses are also providing a tailwind this quarter with Bank of America’s quarterly provision for credit losses creating a benefit of $624mn, reflecting a reserve release of $1.1bn. This was similarly reflected in JPMorgan’s earnings yesterday, which saw profit beat expectations on better-than-expected loan losses.’

These factors are contributing to the current risk-on mood among investors, thereby denting USD.

GBP/USD Exchange Rate Forecast: Can Sterling Hold its Gains?

Looking ahead, risk appetite could continue to play an important part in the GBP/USD exchange rate. If market sentiment sours, the Pound could lose some ground to a recovering US Dollar.

In addition, comments from two Bank of England (BoE) policymakers yesterday may take some of the wind out of Sterling’s sails. Silvana Tenreyro argued that a rate hike would be ‘self-defeating’ if soaring inflation turned out to be temporary. Meanwhile, Catherine Mann highlighted that financial conditions were tightening in anticipation of a rate hike, reducing the need for the BoE to actually hike rates.

With hawkish comments from other BoE officials supporting the Pound in recent weeks, it’s possible that these dovish opinions could have the opposite effect.

As for the US Dollar, US retail sales this afternoon are expected to contract by 0.2%, which could potentially dent USD.

Finally, the University of Michigan consumer sentiment reading for October is forecast to improve marginally, but any unexpected results could trigger movement in the GBP/USD pair.

Samuel Birnie

Contact Samuel Birnie