Pound US Dollar Exchange Rate Wavers Ahead of US Interest Rate Decision

Pound US Dollar (GBP/USD) Exchange Rate Fluctuates amid Returning Risk-On Sentiment

The Pound US Dollar (GBP/USD) exchange rate is trading erratically as the market eagerly awaits the Federal Reserve’s impending policy decision amid mounting global recession fears.

At time of writing, the GBP/USD exchange rate is around $1.2059, a 0.2% rise from this morning’s opening levels.

US Dollar (USD) Quiet Ahead of Fourth Consecutive Rate Hike

The US Dollar is relatively muted today as markets stay on the sidelines and shift their focus to the Federal Reserve’s interest rate decision this evening. Expectations of a 75bps rise have since been baked into the market as investors wait for further clues regarding the September rate decision.

Elsewhere, providing some support to the ‘Greenback’ is the returning risk-averse market sentiment. Troubling news out of Russia threatens to tip the Eurozone into a recession. Gazprom announced on Monday that the Nord Stream pipeline will see capacity reduced down to 20%. A potential gas crisis in the Euro area could be the straw that breaks the camel’s back, plunging the continent into a recession.

Meanwhile, rising Covid cases in China are also weighing on market sentiment. The city of Wuhan shut down public transportation and businesses as China’s zero-Covid policy threatens to stall the economy once again. This could lend support to the US Dollar with the return of safe-haven flows.

Pound (GBP) Supported by Increased Rate Hike Bets

The Pound (GBP) is enjoying modest gains on some of its rivals today. A lack of data could leave Sterling vulnerable to domestic woes.

Lending considerate support to the Pound is rising expectations of a 50bps rate hike from the Bank of England (BoE). However, with inflation rising to 9.4% and the UK economy not showing the strength to support future aggressive rate hikes, the Pound could see a downside in the near future.

Meanwhile, political uncertainty continues to keep a lid on any meaningful gains for the Pound. Polling leader Liz Truss and Rishi Sunak continue to be embroiled in bitter clashes over NHS funding and tax cuts. With Truss leading Tory polls after promises of £30Bn in tax cuts, Sunak immediately made a U-turn and promised to temporarily scrap VAT on energy bills. With fears of reckless and potentially damaging tax cuts, investors remain cautious about how the next Prime Minister will steer the UK out of economic strife.

Elsewhere, the ‘summer of discontent’ kicked off today with the first of several railway strikes. 40,000 workers over 14 train companies have walked out over pay disputes. The continued social unrest is likely to weigh on the Pound this summer with more strikes across numerous industries planned.

Pound US Dollar Exchange Rate Forecast: Fed to Continue Hawkish Rhetoric?

Looking ahead, all eyes will be on the Fed interest rate decision this evening. And with a 50bps hike expected, Fed Chair Jerome Powell will be closely watched for any clues to further hikes.

Elsewhere, durable goods orders are set to print later today, potentially highlighting the slowing US economy. A fall in business spending could cast doubt on the resiliency in the US economy.

Meanwhile, data remains thin on the ground for the Pound, leaving it exposed to market sentiment. With the ongoing political and social volatility, Sterling could see demand sapped.

Danny Tingle

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