Pound US Dollar Exchange Rate Trims Gains as UK Factory Growth Softens

GBP/USD Exchange Rate Eases from Best Levels Following Industrial Data

(Updated: 15:00, 21/6/22) The Pound US Dollar exchange rate is trading with modest gains this afternoon. Sterling having trimmed some of its gains from earlier this morning.

This pullback comes on the back of the latest Industrial trends orders index from the Confederation of British Industry (CBI). The index reported UK factory output growth slowed more than expected in the three months to June.

Elsewhere the reopening of US markets offered a temporary reprieve for the US Dollar this afternoon, but persistent risk-off flows quickly reversed these gains.

Original article continues below:

Pound US Dollar Exchange Rate Buoyed by Risk-On Flows

The Pound US Dollar (GBP/USD) exchange rate is ticking higher this morning. Supported by an optimistic market mood.

At the time of writing the GBP/USD exchange rate is trading at around $1.2308. Up roughly 0.5% from this morning’s opening levels.

US Dollar (USD) Stumbles in Risk-On Trade

The US Dollar (USD) is faltering this morning. Improving risk appetite undermining demand for the safe-haven currency.

A rebound in equity markets at the start of today’s European trading session appears to be underpinning this optimism.

The US Dollar has roared higher in recent weeks as global recession fears battered markets. Up to 70% of economists polled by the Financial Times forecast the US will slip into a recession next year.

However, world leaders have played down recession concerns. US President Joe Biden claimed on Monday that a US recession is ‘not inevitable’.

Conversely rising US Treasury yields are helping to temper the US Dollar’s losses.

Pound (GBP) Firms on BoE Comments

The Pound (GBP) is firming this morning. Rallying in the wake of comments from Bank of England (BoE) Chief Economist Hue Pill.

Pill stated he expected further monetary tightening will be necessary in the coming months.

Speaking at the Institute of Chartered Accountants in England and Wales, Pill said:

‘We will do what we need to do to get inflation back to target. And at least in my view, that will require further tightening of monetary policy over the coming months.’

Pill’s push back against calls for more aggressive hikes may have capped Sterling. As he warns that the BoE is ‘steering a narrow path between persistent inflation pressure and recession’.

The Pound’s upside potential has also been capped by concerns over the UK’s rail strike.

GBP investors are concerned over the economic impact of the strikes. Analysts suggested today’s industrial action could cost the UK hospitality industry up to £500m.

Pound US Dollar Exchange Rate Forecast: UK Inflation in the Spotlight

The Pound US Dollar exchange rate could face some volatility tomorrow with the release of the UK’s consumer price index.

Domestic inflation is expected to have rising from 9% to 9.1% in June.

On one hand the continued acceleration of inflation will place pressure on the BoE to act more aggressively in raising interest rates. Potentially reflecting positively on Sterling.

However, Sterling could weaken in another jump in inflation also reignites concerns over the UK’s cost of living crisis.

The start of Federal Reserve Chair Jerome Powell’s two-day testimony before Congress is likely to be in the spotlight for USD investors on Wednesday.

Powell is likely to be grilled on what the Fed is doing to combat US inflation. Powell may reiterate that the bank is ‘acutely focused’ on returning inflation to its 2% target. Boosting the US Dollar in the process.

Matthew Andrews

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