Pound US Dollar (GBP/USD) Exchange Rate Extends Downside amid Central Bank Speeches

Pound US Dollar (GBP/USD) Exchange Rate Continues to Slide following BoE and Fed Comments

(Updated 15:40, 29/6/22) The Pound US Dollar (GBP/USD) exchange rate fell further today as markets digested comments from the Bank of England (BoE) Governor Andrew Bailey and Federal Reserve Chair Jerome Powell.

Speaking on a panel at the European Central Bank (ECB) forum in Sintra, the two central bank chiefs gave their opinions on their respective economies.

Powell struck a far more hawkish and upbeat tone. When asked about the risk of a US recession, Powell replied:

‘The biggest risk to the economy would be to fail to restore price stability.’

Overall, Powell sounded confident that the US economy was resilient, suggesting that the Fed will go ahead with aggressive rate rises. This boosted the US Dollar (USD).

On the other hand, Bailey struck a more downbeat tone. The BoE chief emphasised the UK’s current cost-of-living crisis, saying that the income squeeze is already cooling the economy. Not only did his comments highlight the UK’s economic plight, they also implied that more forceful rate hikes from the BoE aren’t guaranteed.

Amid these comments, the Pound US Dollar pair is tumbling. At the time of writing, GBP/USD is trading around $1.2113, down 0.7% from this morning’s opening level of $1.22.

Original article continues below:

Pound US Dollar (GBP/USD) Exchange Rate Falters in Risk-Off Mood

The Pound US Dollar (GBP/USD) exchange rate has slipped to a 13-day low this morning as a downbeat market mood supports the safe-haven US Dollar (USD).

At the time of writing, GBP/USD is trading around $1.217, down from today’s high of $1.2209.

Pound (GBP) Muted amid Lack of Data

The Pound (GBP) is struggling this morning as a lack of data leaves Sterling without much support.

In addition, ongoing concerns about the UK economy are keeping pressure on the Pound. The country is in the grips of a cost-of-living crisis, with surging inflation, falling real wages, higher taxes and rising interest rates all hammering UK households.

The economic outlook is gloomy at best, with many analysts forecasting a recession. This generally downbeat tone is subduing Sterling in the absence of any UK economic data this morning.

US Dollar (USD) Enjoys Risk-Averse Trade

Meanwhile, the US Dollar is attracting support as investors seek safer investments.

Last night, American stocks tumbled following downbeat US consumer confidence data. The latest CB consumer confidence index fell by more than forecast, while the expectations index element of the survey plunged to its lowest level since March 2013.

As inflation squeezes household budgets, citizens in the US are extremely pessimistic about the future.

Richard Hunter, Head of Markets at interactive investor, commented:

‘With the consumer being central to US economic growth, the recent raft of pessimistic readings has led to some concerns that sentiment could become self-fulfilling as consumers hunker down in the face of higher prices, especially fuel and food.

‘The Federal Reserve will of course be aware of the deteriorating sentiment, but for the moment is showing no signs of abandoning its primary objective of battling inflation head-on.’

This worrying outlook actually supported the safe-haven US Dollar as investors abandoned riskier currencies in favour of USD.

The downbeat mood continued overnight and into today’s European trade, pushing the ‘Greenback’ even higher.

Pound US Dollar Exchange Rate Forecast: BoE and Fed Chiefs in Focus

Through the first half of today’s trade, risk appetite and domestic UK news could drive the GBP/USD exchange rate.

If investors remain downbeat, the US Dollar could climb further. At the same time, any negative headlines about Brexit tensions or the UK economy could hurt Pound Sterling.

This afternoon, the heads of the Eurozone, UK and US central banks are taking part in a panel discussion. For the Pound US Dollar pair, investors will be particularly sensitive to comments from the Bank of England (BoE) Governor Andrew Bailey and the Federal Reserve Chair Jerome Powell. If either strikes a hawkish tone, it could support the respective currency.

Samuel Birnie

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