Pound US Dollar Exchange Rate Wavers amid Policy Divergence

Pound US Dollar Exchange Rate Fluctuates as BoE and Fed Policy in Focus

The Pound US Dollar (GBP/USD) exchange rate is zigzagging as policy divergence between the central banks and global growth concerns weigh on the pairing.

At time of writing the GBP/USD exchange rate is trading around $1.23, a moderate climb from this morning.

Pound (GBP) Softens after Surprising Rally

The Pound (GBP) has lost the momentum it gained after yesterday’s Bank of England (BoE) interest rate decision inspired surprising movement for Sterling.

As the BoE hiked interest rates by an expected 25bps to 1.25%, it also dropped several hints that future price hikes could be more aggressive, providing a much-needed boost for the Pound. Economists at ING are looking ahead at how the BoE might shape its monetary policy in the coming months:

‘Despite only hiking 25 bps yesterday, market pricing of the Bank rate at year-end rose to 3.00% from 2.84%! It seems the BoE is not in the mood to fight this market pricing at present and the next big opportunity only comes at the 4 August MPC meeting.’

Elsewhere, the government’s reluctance to replace ethics adviser Lord Geidt has drawn criticism from across the board. The resignation of Geidt, the second ethics adviser to resign from Boris Johnson’s government in two years, has cast further doubt on Johnson’s leadership. Continued political turbulence is likely to weigh on the Pound.

US Dollar (USD) Wavers amid Darkening Economic Landscape

The US Dollar is muted today against its peers after a flurry of US data provided little to inspire confidence amidst the gloomy economic global outlook. Providing modest support to the US Dollar today are US Treasury bond yields, having lost 3% on Thursday, they are now up more than 1%.

With the Federal Reserve (Fed) stepping up their price hikes with a 75bps increase, and continuing their hawkish tone, economists at ING expect further rate hikes, and in turn, a stronger ‘Greenback’ in the coming months:

 ‘We now expect the Fed to deliver rate hikes of 75 bps in July, 50 bps in September, 50 bps in November and 25 bps in December, bringing the federal funds target range to 3.50-3.75% by the end of 2022.’

Pound US Dollar Forecast: Fed Speech to Buoy the US Dollar?

With data thin on the ground for the Pound US Dollar, an expected speech from the Fed chair Jerome Powell later today will act as the primary catalyst of movement in the pairing today.

This could boost the US Dollar if Powell sheds more light on the bank’s policy goals, particularly if he indicates plans to maintain the current pace of tightening beyond its July meeting.

Elsewhere, market movement for the Pound could be dictated by the continuing UK political turmoil, as well as the ongoing Brexit negotiations.

Danny Tingle

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