GBP/USD Exchange Rate Bolstered by BoE Bailey Comments
(Updated: 16:20, 19/7/22) The Pound US Dollar exchange rate continues to trade with considerable support this afternoon, following comments from BoE Governor Andrew Bailey.
Speaking this afternoon Bailey suggested that a 50bps rate is certainly an option for the BoE in August. He also suggested the bank needs to ‘act forcefully’ as the bank sees ‘greater persistence of inflation.’
On the other hand Bailey kept Sterling’s gains in check by warning that there are already signs the economy is slowing and that May’s stronger-than-expected GDP figures are deceptive.
Meanwhile the US Dollar remains on the defensive, being buffered by receding Fed rate hike bets and a risk-on mood.
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Pound US Dollar Exchange Rate Firms on Hopes for 50bps BoE Rate Hike
The Pound US Dollar (GBP/USD) exchange rate is trending higher this morning on hopes the Bank of England (BoE) will accelerate its current tightening cycle.
At the time of writing the GBP/USD exchange rate is trading at around $1.2034. Up roughly 0.7% from this morning’s opening levels.
Pound (GBP) Buoyed by BoE Rate Hike Bets
The Pound (GBP) is on positive footing against the US Dollar (USD) this morning. Expectations for a 50bps rate hike from the BoE underpinning Sterling in early trade.
These expectations have been supported by hawkish comments made by BoE policymaker Michael Saunders on Monday. Saunders claimed, ‘the tightening cycle may still have some way to go’ and that interest rates could reach 2% or higher in 2023.
The bullish BoE bets are offsetting the release of a mixed jobs report from the UK today.
May’s figures reported that unemployment held at 3.8% versus forecasts it would tick up to 3.9%.
However the accompanying wage growth figures were more downbeat. May’s figures highlighted the growing gap between wages and inflation, with UK workers suffering a record slump in real pay, further exacerbating the country’s cost of living crisis.
While these concerns may cap Sterling’s upside potential today, analysts are confident it won’t move the dial much for the BoE regarding next month’s interest rate decision.
US Dollar (USD) on Receding Fed Rate Hike Expectations
The US Dollar (USD) remains on the defensive this morning, amid an ongoing market correction.
USD exchange rates soared to a 20-year high last week, but have now fallen back to their lowest levels since early July.
This sharp reversal in the US Dollar’s fortunes comes as USD investors continue to scale back their expectations for the Federal Reserve’s next interest rate hike.
A stronger-than-expected US inflation print prompted the odds for a 100bps rate hike from the Fed to climb above 80% last week.
However several Fed policymakers have since made a concerted effort to play down the chances of such an aggressive hike, triggering the recent correction in USD exchange rates.
Pound US Dollar Exchange Rate Forecast: BoE Bailey Speech in the Spotlight
Still to come today is a speech by BoE Governor Andrew Bailey. GBP investors will be keeping a close eye on Bailey’s remarks for any hints regarding the bank’s next interest rate decision.
This could see the Pound US Dollar exchange rate strengthen if Bailey reinforces expectations BoE could pursue a more aggressive interest rate hike in August.
Alternatively, Sterling is likely to weaken if Bailey pushes back on calls for a 50bps hike.
Meanwhile, USD investors will look to a speech by Fed policymaker Lael Brainard for fresh impetus this evening.
If she also plays down the prospect of a 100bps rate hike next month the US Dollar may extend its losses.