The Pound US Dollar (GBP/USD) exchange rate is firming today. A sharp decline in US Treasury bond yields and a return of global risk appetite is likely helping the currency pair to climb.
GBP/USD will be working to recover some of its recent losses after falling consistently over the past week. Contrasting central bank stances weighed upon the currency pair.
What’s Been Happening: Bailey Signals Dovish Stance for BoE, Powell Confirms Rate Hikes Despite Recession Fears
The Pound (GBP) continued to slide last week amid a cautious stance from the Bank of England (BoE).
Speaking on Wednesday, BoE Governor Andrew Bailey signalled that the central bank would be prepared to limit any forceful actions amid a potential recessions. Additionally, the BoE’s newest policymaker Swati Dhingra stated that a ‘very gradual’ approach to rate hikes was necessary.
In direct contrast to this, the US Dollar (USD) saw gains amid a hawkish stance from the Federal Reserve. Also on Wednesday, Fed Chair Jerome Powell reiterated the central bank’s hawkish forward guidance. Powell stated that despite the risk if a recession the Fed would not shy away from a series of aggressive rate hikes.
These recession fears, partially prompted by Powell, actually helped the safe-haven ‘Greenback’ to climb higher over the past seven days.
Signs of cooling inflation on Thursday may have capped any major gains for USD, however. The PCE price index, the Fed’s preferred measure of inflation, remained unchanged in May. Whilst the rate was still high, some investors saw this as evidence that US inflation may have peaked.
Weekly highlights
- BoE Governor Andrew Bailey Speech
After Bailey’s cautious speech last week, will a continued dovish stance push GBP lower?
- FOMC Minutes
Will the minutes echo Powell’s hawkish speech and see USD climb?
- Non Farm Payrolls
With June’s figures forecast to fall, will a tight labour market increase rate hike bets on the US Dollar?
GBP/USD Forecast
Further concerns over a global economic slowdown could see the exchange rate fall further. Additionally, Brexit-related headwinds and a generally poor outlook for the UK economy could also push the currency pair lower.