GBP/USD Exchange Rate Firms as 50bps Rate Hike Deemed ‘Unlikely’
(Updated 17:00, 09/03/2022) The Pound US Dollar (GBP/USD) exchange rate continued to climb through this afternoon’s session, as the Pound (GBP) enjoyed sustained risk-on tailwinds and the US Dollar (USD) came under pressure from weakening rate hike bets.
A rate hike from the Federal Reserve next week is widely expected – even despite the recent turmoil across financial markets – but analysts at Wells Fargo believe the chance of a 50 bps hike ‘has fallen tremendously given the souring outlook to growth amid higher commodity prices.’
Instead, the Fed is widely forecast to hike interest rates by 25bps – a move for which Chairman Jerome Powell has expressed support.
Meanwhile, risk sentiment may be about to turn, given news of a Russian air strike hitting a maternity hospital in Mariupol. According to reporters, some 17 people have been wounded, including women in labour.
As Ukrainian President Volodymyr Zelenskiy appeals to Western powers to ‘close the skies’, the prospect of progress via tomorrow’s diplomatic meeting between Russian and Ukrainian diplomats appears to weaken.
Original article continues below:
Pound US Dollar Exchange Rate Climbs on Stronger Risk Sentiment
The Pound US Dollar (GBP/USD) exchange rate has inched higher this morning as a positive risk tone undermined the safe-haven US Dollar (USD), following yesterday’s announcement that the US will no longer be buying Russian energy. Lending further upside is news of successful civilian evacuations across Ukraine.
At the time of writing, GBP/USD is trading at $1.3142, up 0.3% from today’s opening levels.
Pound (GBP) Gains on Improving Market Mood
The Pound (GBP) has found support against the US Dollar today, as risk sentiment stabilizes on positive updates from Ukraine.
The international community has expressed relief at news that Russia has agreed to ceasefire on humanitarian corridors between 9am – 9pm, allowing civilians to leave the besieged city of Sumy. The city’s mayor, Oleksandr Lysenko, informed the public via a television broadcast, following which residents began to flee in private cars.
Lending further support is the announcement of a meeting between Russian and Ukrainian foreign ministers in Turkey tomorrow. Such talks would be the first between top diplomats since Russia launched its invasion of Ukraine.
As a NATO member, Turkey has offered to mediate between the sides – Ankara has good relations with both Moscow and Kyiv, calling Russia’s invasion unacceptable even as it opposed sanctions against Moscow.
A lack of significant UK data leaves the Pound to trade on external factors for the remainder of the day. If Ukrainian citizens are able to leave the country unharmed, upbeat risk sentiment may further support GBP.
US Dollar (USD) Weakens Following Energy Ban
The US Dollar is falling against its peers so far today as stronger risk sentiment drives flows away from safe-haven assets. A generally positive tone around the equity markets also undermines support for the ‘Greenback’.
Nevertheless, the risk of further escalation in the conflict between Russia and Ukraine is high, and caps major upward traction for GBP/USD. In response to Russia’s recent brutality, US President Joe Biden has imposed an immediate ban on Russian oil and other energy imports.
While demonstrating support for Ukraine, Biden acknowledged that the move will hurt American families at the gas pumps, pushing prices higher. Russian officials had previously warned that the consequences of such a move would be ‘catastrophic’.
In the wake of the President’s announcement, Russia announced plans to ban the exports of certain commodities and raw materials: even countries with low Russian energy imports are set to feel the impact as the measures are likely to boost already high wholesale prices.
Higher inflationary pressures could dampen trading sentiment, drawing support back to the US Dollar. On the other hand, such an eventuality would increase pressure on central banks to tighten their monetary policies, potentially boosting markets’ mood.
Pound US Dollar Exchange Rate Forecast: US Inflation to Influence Movement?
Looking ahead, US inflation data is likely to affect the Pound US Dollar exchange rate tomorrow: if inflation increased in February as expected, USD may enjoy tailwinds on hopes of the Federal Reserve tightening monetary policy.
In the meantime, JOLTs employment figures could influence ‘Greenback’ trading – if job openings remained at 10.925m in January as expected, USD investors might interpret the data as a sign of a healthy labour market, buoying the US Dollar.