(Updated 16:45 03/03/22)
The Pound US Dollar (GBP/USD) steadily fell over the course of the day. A renewed drive to safe-haven currencies in the face of increased hostilities in Ukraine kept the US Dollar (USD) buoyed.
A second testimony from Federal Reserve Chair Jerome Powell likely further boosted USD today. Powell stated that inflation was tooo high and that keeping interest rates lower would not be appropriate.
Additionally, Powell cited that ‘in hindsight’ the tightening labour market in the US should have led the Fed to raise rates sooner.
At time of writing the GBP/USD exchange rate is at around $1.338, which is down roughly -0.45% from this morning’s opening figures.
Pound US Dollar (GBP/USD) Exchange Rate Muted after Hawkish Powell Speech
The Pound US Dollar (GBP/USD) exchange rate is trading within a narrow range today. A notably hawkish speech from Federal Reserve Chair Jerome Powell on Thursday has boosted the US Dollar, limiting upward movement for the currency pair. A risk-off trading mood prompted by the Russian invasion of Ukraine likely also kept the GBP/USD exchange rate subdued.
At time of writing the GBP/USD exchange rate is at around $1.3382, virtually unchanged from this morning’s opening figures.
US Dollar (USD) Gains as Powell Signals Possibility of Aggressive Future Rate Hikes
The US Dollar (USD) is climbing today amid the continued Russian invasion of Ukraine. Worries over the impact of the conflict on world finances have continued to drive investors to the safe-haven ‘Greenback’.
Reports from the conflict indicate that Russia has successfully captured the city of Kherson. The indiscriminate shelling of civilian areas has intensified as Russian forces also surround the cities of Mauripol and Melitopol. The possibility of further peace talks today could cap gains for USD however.
The global backlash against Russia for the invasion has continued to intensify in recent days. On Wednesday evening the UN convened an emergency session, its first since 1997, in which 141 of the 193 members voted to condemn the country’s invasion of Ukraine.
Wednesday’s testimony from Fed Chair Jerome Powell also helped boost USD moving into this morning’s session. Speaking in front of the US Congress, Powell signalled that he supported a 0.25% interest rate hike at the Fed’s March meeting.
Powell also suggested that he would support more aggressive rate hikes at future meetings:
‘We would be prepared to move more aggressively by raising the federal funds rate by more than 25 basis point at a meeting or meetings.’
Pound (GBP) Dips despite Service Sector Recovery
The Pound is dropping against many of its rivals today amid a continued risk-off trading mood. The Russia-Ukraine conflict has continued to place pressure on the currency, driving investors to safe-havens. Despite this, Sterling has made some gains against the Euro (EUR).
A dovish turn from multiple Bank of England (BoE) policymakers has weighed on Sterling today. The central bank has sought to limit investor expectations of aggressive rate hikes in recent weeks amid market instability.
BoE deputy governor Jon Cunliffe warned that higher interest rates could cause additional risks in the financial markets, whilst policymaker Silvia Tenreyro warned that the Russia-Ukraine conflict could harm the UK’s economic growth.
An expansion of the UK’s services sector in February may have helped underpin major losses for the Pound however. PMI figures indicated a health post-Omicron recovery for the sector, although inflationary pressures continued to drive up costs for businesses.
Pound US Dollar (GBP/USD) Exchange Rate Forecast: Will US Labour Market Tighten Further?
Looking ahead to the rest of the week for the Pound, a speech by BoE policymaker Silvia Tenreyro could push Sterling lower should she echo her previously pessimistic comments. Aside from this, GBP is likely to continue to be affected by global risk appetite.
For the US Dollar, an additional testimony from Fed Chair Jerome Powell could push the currency higher should his stance remain hawkish. A forecast rise to February’s ISM Non-Manufacturing PMI could also boost USD.
On Friday, US Dollar investors will likely be closely watching the release of February’s employment figures. Non farm payrolls for the month are expected to fall whilst the unemployment rate is forecast to remain largely unchanged. USD could edge higher after these figures should investors increase their expectations of more aggressive rate hikes from the Fed.