Pound US Dollar Exchange Rate Bolstered amid Falling US Yields
The Pound US Dollar (GBP/USD) exchange rate is trading at a one-week high this morning as the ‘Greenback’ is weakened by falling US Treasury yields.
At the time of writing the GBP/USD exchange rate is trading at around $1.3533, virtually unchanged from this morning’s opening levels.
US Dollar (USD) Dented by Falling US Treasury Yields
At the same time, the US Dollar (USD) remains on the back foot this morning as a continued fall in US treasury yields takes its toll on the currency.
This slump in yields comes as some USD investors reassess their expectations for Federal Reserve interest rate hikes in 2022, following some dovish comments from Fed policy makers earlier in the week.
These comments have seen analysts suggest the Fed will not hike rates quite as aggressively as markets began to price in following some notably hawkish comments from Fed Chair Jerome Powell in the wake of the US central bank’s policy meeting last week.
A prevailing risk-on mood is also sapping the appeal of the safe-haven US Dollar this morning.
Pound (GBP) Stable as UK Government Unveils ‘Levelling Up’ Strategy
At the same time, the Pound (GBP) is trading without any strong directional bias this morning, with GBP investors seemingly unfazed by the announcement of the UK government’s ‘levelling up’ strategy.
The government hopes the plan will help to close the divide between the rich and poorer parts of the UK and was a major manifesto pledge for the Conservatives in the 2019 general election.
However, the strategy appears rather limited in scope, perhaps reflecting the current fiscal pressures on public finances, leaving Sterling largely unfazed by the announcement.
Movement in the Pound is also being limited by GBP investors’ reluctance to make any bullish bets ahead of the Bank of England’s (BoE) interest rate decision tomorrow.
Pound US Dollar Forecast: All Eyes on BoE Rate Decision
Looking ahead, it seems safe to assume the Bank of England’s will be in the spotlight in the second half of the week as it concludes its first policy meeting of 2022.
With an expected rate hike from the BoE largely priced in, the reaction to the hike itself might be largely muted.
Instead, the main catalyst of movement in the Pound US Dollar exchange rate is likely to be the BoE’s forward guidance. This could see Sterling soar if the bank signals it might continue to hike interest rates aggressively through 2022.
Alternatively, a more cautious outlook from the BoE is likely to weigh on the GBP/USD exchange rate.
In the meantime, the publication of the latest US ADP employment report could apply some pressure to the US Dollar later this afternoon. January’s figures are expected to report a sharp plunge in employment growth, which may dampen expectations for Friday’s more influential payroll reading.