Pound US Dollar Exchange Rate Wavers ahead of Key Data
The Pound US Dollar (GBP/USD) exchange rate is edging higher this morning on tentative Pound (GBP) optimism combined with US Dollar (USD) weakness. Risk-on trading sentiment saps support for the safe-haven ‘Greenback’ while lending support to GBP.
At the time of writing, GBP/USD is trading at $1.2390, up 0.4% from today’s opening levels.
US Dollar (USD) Looses Support Amidst Risk-On Flows
The US Dollar is edging down against its peers this morning as a tentative risk-on impulse caps support for the currency. According to analysts, USD’s recovery from weekly lows appears to have run out of steam.
A negative performance of US bond yields exacerbates downside, while ‘Greenback’ investors appear to have taken little heed of upbeat comments given by Federal Reserve speaker Patrick Harker yesterday afternoon.
Harker advocated for a 50bps rate hike at both the June and July FOMC events and forecast a tight labour market through 2022.
Later in the year, he said he anticipates ‘a sequence of increases in the funds rate at a measured pace until we are confident that inflation is moving toward the Committee’s inflation target.’
This afternoon, US manufacturing data and a weekly jobless report may prompt further movement in US Dollar exchange rates: manufacturing activity is forecast to have fallen in May so far, applying potential downside.
On the other hand, jobless claims are set to have fallen to 200K last week. USD investors may be encouraged if the reading drops from last week’s 3-month high of 203K.
Pound (GBP) Investors Predict BoE Tightening Action
The Pound (GBP) is reversing some of its recent losses against the US Dollar this morning, as markets reprice UK rate expectations despite cautious overtones from the Bank of England (BoE).
UK inflation printed at 9% earlier this week, triggering fierce criticism from anti-poverty campaigners who argued that the government was not doing enough to protect lower-income families against the cost-of-living-crisis.
Faced with fears of recession amidst stalling economic growth, the BoE cautioned that aggressive policy tightening was not the solution, acknowledging the pressure put upon households by higher prices yet advising against wage increases as a solution.
Nevertheless, higher wage settlements seem inevitable given persistent labour market tightness – threatening second-round inflation effects at a time when Sterling depreciation may be adding to external inflation drivers.
Ana Luis Andrade, Bloomberg economist, observes:
‘An exceptionally tight jobs market raises the risk that the central bank will lift rates a little further than we forecast – probably in June and possibly in August.’
Subsequently, money markets are pricing in a 2.5% rise in interest within a year.
Pound US Dollar Exchange Rate Forecast: Data Releases to Drive Movement?
Looking ahead, the release of May’s industrial trends orders from the Confederation of British Industry (CBI) may influence the Pound US Dollar exchange rate.
If the CBI’s order book balance rose to 17 as per expectations, Sterling could enjoy a further boost.
However, GBP upside could also be countered by upbeat data from the USA. If US jobless claims fell as predicted over the course of last week, USD might stage a slight rebound.