(Updated 16:45 17/02/22)
The Pound US Dollar (GBP/USD) exchange rate continued to climb today as Sterling was bolstered by expectations of an interest rate hike from the Bank of England (BoE). A continued escalation of hostilities at the Ukraine-Russia border may have also kept the US Dollar (USD) under pressure.
At time of writing the GBP/USD exchange rate is at around $1.3629, which is around 0.4% up from this morning’s opening figures.
Pound US Dollar (GBP/USD) Exchange Rate Rangebound amid Ukraine-Russia Tensions
The Pound US Dollar (GBP/USD) exchange rate has traded within a narrow range today. Ongoing tensions at the Ukraine-Russia border have continued to place pressure on the Pound US Dollar currency pair.
At time of writing the GBP/USD exchange rate is at around $1.3600, nearly unchanged from this morning’s figures.
US Dollar (USD) Dented as Investors Disappointed by FOMC Minutes
The release of January’s FOMC minutes on Wednesday evening have continued to weigh upon the US Dollar (USD) today.
The release of the US Federal Reserve’s 25-26 January meeting minutes was met with a mixed reception by the markets. The minutes outlined that any interest rate hikes would be made on a meeting-by-meeting basis following the analysis of any recent inflation and labour data.
The Fed also made clear that faster rate hikes would be coming if necessary but gave no guarantee of the 0.5% hike largely expected at their March meeting. Analysts did highlight that the meeting came before hotter than expected US inflation data in February, and many Fed officials have adopted a more hawkish tone in recent weeks.
Overall a less hawkish tone than expected by the markets prompted USD to drop against many of its competitors overnight.
However, losses for the safe-haven ‘Greenback’ could be underpinned today but a retreat of Wednesday’s risk-on trading sentiment. As further reports of Russian troop movements from the Ukraine border emerge, the picture painted by the Kremlin of de-escalation has become less clear.
US officials have said that Russia has in fact deployed an additional 7000 troops to the area as well as armoured vehicles, helicopters, and field hospitals. This lack of clarity is likely to help buoy the US Dollar has investors seek safer currencies amid this uncertainty.
Pound (GBP) Climbs despite Reports that Brexit is Hampering Trade
The Pound (GBP) made gains against many of its rivals today amid a risk-off market mood. Expectations of a rate hike from the Bank of England (BoE) following Wednesday’s high inflation data may have also acted as tailwinds for Sterling.
Multiple reports citing ongoing trade issues surrounding Brexit may act as headwinds for GBP however. A report by the British Chamber of Commerce (BCC) surveyed 1000 firms and found that majority were facing increased costs and difficulties exporting goods to Europe.
The concerns cited included additional costs, increased paperwork and delays, and a competitive disadvantage.
A report from the Resolution Foundation is also likely to weigh upon Sterling today. The foundation’s report addressed PM Boris Johnson’s claims that Brexit would deliver a ‘higher-wage’ economy to workers remaining in sectors such as food and agriculture.
Instead of delivering increased wage growth, the report instead found that it was likely these sectors would turn to automation in the face of soaring costs and an acute labour shortage.
GBP/USD Exchange Rate Forecast: Will Fed Officials give Further Rate Hike Hints?
Looking to the week ahead, January retail sales figures for the UK are forecast to strongly recovery on Friday. The Pound could make gains should the figures print as forecast.
For the US Dollar, Thursday’s forecast drop in initial jobless claim figures may see USD tick upward. Investors will be most focused on speeches from a range of Fed officials on Thursday and Friday however. Any hawkish comments, particularly following the FOMC minutes, could lift the US Dollar.