Pound US Dollar (GBP/USD) Trades Narrowly amid Risk-On Mood
(Updated 16:42 04/07/22)
The Pound US Dollar (GBP/USD) exchange rate traded sideways today. A return of global risk appetite likely underpinned the currency pair, as well as a closure of the US markets due to Independence Day.
Major gains for GBP/USD may been limited by a gloomy outlook for the UK economy however. After the BCC’s report earlier today, polling conducted by Ipsos found that three in four Britons expect the economy to worsen over the next 12 months. Many of those surveyed, around one in three, also stated that they would lilely struggle should inflation continue to rise as forecast.
At time of writing the GBP/USD exchange rate is at around $1.2103, virtually unchanged from this morning’s opening figures.
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Pound US Dollar (GBP/USD) Exchange Rate Edges Higher amid US Bond Yield Fall
The Pound US Dollar (GBP/USD) exchange rate is ticking higher today. A downturn to US Treasury bond yields may be helping the currency pair to make gains. The Independence Day holiday in the US may also be pushing GBP/USD higher as US markets remain closed.
At time of writing the GBP/USD exchange rate is at around $1.2120, which is up around 0.2% from this morning’s opening figures.
Pound (GBP) Subdued as Firms set to Raise Prices Higher
The Pound (GBP) is ticking lower against its rivals today. Concerns over the long-term strength of the UK’s economy as well as fresh Brexit-related headwinds could be weighing on Sterling.
The UK has faced fresh criticism over its recent approach to Brexit and the Northern Ireland Protocol. Last week saw the UK government pass legislation designed to allow changes to be made to the agreement.
The move was denounced yesterday in joint statement from Germany and Ireland’s foreign ministers. The two representatives criticised the UK’s plans as having ‘no legal or political justification’.
GBP may also be facing pressure amid signs that the country’s cost-of-living crisis is set to worsen. A recent survey conducted by the British Chambers of Commerce (BCC) found that two-thirds of firms are planning to raise prices in the next three months.
Speaking on the figures, the BCC’s head of research David Bharier said:
‘Businesses face an unprecedented convergence of cost pressures, with the main drivers coming from raw materials, fuel, utilities, taxes, and labour.’
US Dollar (USD) Ticks Lower despite Rate Hike Bets
The US Dollar (USD) is seeing reduced bets today. A downturn to US Treasury bond yields may be weighing on USD. US markets are also closed due to the independence day holiday.
On the other hand, ongoing rate hike bets from the Federal Reserve could be limiting major losses for the currency today.
Speaking last week, Fed Chair Jerome Powell gave further hawkish signals regarding the central bank’s forward outlook. Powell reiterated his stance that the Fed would not allow high inflation to become embedded.
Powell also stated that action would be taken despite the possibility that high interest rates could push the US economy into a recession. Markets are now pricing in the possibility of such an end result.
Fears of a global slowdown, prompted in part by Powell, may actually be acting as tailwinds for the safe-haven ‘Greenback’ today.
GBP/USD Exchange Rate Forecast: Will BoE Policymakers Reaffirm Cautious Stance?
Looking to the week ahead for Sterling, the final reading of June’s PMI for the services sector could bolster the currency.
A speech from BoE policymaker Huw Pill could pull the Pound lower, however. Markets are still anticipating that the central bank will maintain a cautious stance. A speech from the BoE’s Catherine Mann on Thursday could have a similar effect.
For the US Dollar, a speech from Federal Reserve policymaker John Williams on Tuesday could boost USD. The release of the latest FOMC minutes could also push the currency higher if they reaffirm rate hike bets.
Also on Tuesday, a forecast drop to JOLTs job openings figures could see USD climb if investors see it as a sign of a tight labour market. A predicted drop to Non Farm Payrolls figures on Friday could provide further support to this perspective.