Pound US Dollar (GBP/USD) Exchange Rate Tumbles as Powell Signals 0.5% Rate Hike

(Updated 16:45 22/04/22)

The Pound US Dollar (GBP/USD) exchange continued to fall today. A speech from Bank of England Governor Andrew Bailey remained dovish, as he stated that the central bank could deal with the UK’s record-high inflation without damaging the economy.

Investors likely took this a sign that the BoE would remain cautious on any future rate hikes, and limited bets on GBP as a result.

At time of writing the GBP/USD exchange rate is at around $1.2848, which is around -1.3% down from this morning’s opening figures.

Pound US Dollar (GBP/USD) Exchange Rate Nosedives amid Hawkish Fed

The Pound US Dollar (GBP/USD) exchange rate is plummeting today after weaker than expected UK data releases today. The pair fell to its lowest point since late 2020 this morning. The US Dollar (USD) is also being strengthened by rising US Treasury bond yields. Additionally, ongoing strong expectations of an aggressive rate hike from the Federal Reserve are also pulling the currency pair lower.

At time of writing the GBP/USD exchange rate is at around $1.2880, which is down roughly -1% from this morning’s opening figures.

Pound (GBP) Drops as Consumer Confidence Falls below 2008 Levels

The Pound (GBP) is tumbling against its rivals today after sharp drops to retail sales and consumer confidence figures. Bets on Sterling may also be reduced ahead of a speech from Bank of England (BoE) Governor Andrew Bailey later today.

Consumer confidence in the UK fell to its lowest point in April since the financial crisis of 2008 today. Soaring energy prices, tax hikes, and record-high inflation saw the index fall to -38, above forecasts of -31. The figures contributed to an already gloomy long-term outlook for the UK and likely pulled the Pound lower.

An above-forecast fall to March’s retail sales is also weighing on Sterling today. Sales fell by 1.4% in March versus forecasts of 0.3%. Analysts highlighted the UK’s worsening cost-of-living crisis as a primary contributor, with higher costs for fuel and food limiting household spending on more significant purchases.

Finally, inflationary pressure and the war in Ukraine hampered demand in the UK private sector in April. Flash PMI figures came in below-forecasts today as mounting price pressures limited growth and dented confidence in Sterling.

The figures today have limited expectations that the BoE will hike rates at its next meeting, potentially pulling GBP further down. Economists are wary that a rate hike from the central bank could place extra pressure on household incomes.

US Dollar (USD) Gains after Powell Signals 0.5% Rate Hike in May

The US Dollar (USD) is climbing against many of its rivals today. The upward momentum comes after Fed Chair Jerome Powell’s endorsement of a 0.5% interest rate hike at the Fed’s May meeting. This in turn caused US bond yields to edge higher which is also bolstering USD today.

Speaking on an IMF-hosted panel, Powell stated that he was committed to getting inflation back to 2%. Regarding rate hikes, Powell said:

‘Fifty basis points will be on the table for the May meeting.’

Powell went on to say that there’s ‘something in the idea of front-end loading’ rate hikes, hinting that further aggressive rate hikes may be coming from the central bank in the future. Powell also highlighted the country’s tightening labour market as a sign that imminent action on monetary policy as necessary.

Powell’s comments add fuel to aggressive rhetoric from the Fed in recent weeks. Multiple policymakers have highlighted the need for a 0.5% rate hike to tame soaring inflation.

GBP/USD Exchange Rate Forecast: Will Bailey Continue Dovish Tact?

For the Pound, a speech later today from BoE Governor Andrew Bailey could cause movement in the currency. Given today’s figures for the UK, it’s likely Bailey will continue to push a cautious stance which could limit gains for the Pound.

For the US Dollar, flash PMI figures for April could bring losses should they fall as forecast. The Ukraine-Russia conflict could help keep USD buoyed however should investors look to safe-haven currencies.

Gareth Monk

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