Pound US Dollar (GBP/USD) Exchange Rate Trades Narrowly as Markets Bet on BoE Rate Hike

Pound US Dollar (GBP/USD) Exchange Rate Remains Rangebound Despite Strong US PCE Figures

(Updated 16: 29/07/22)

The Pound US Dollar (GBP/USD) exchange rate continued to trade within a narrow range today. The currency pair likely saw gains capped after the PCE price index, the Fed’s preferred measure of inflation, printed above forecasts today. Additionally, the figures may have helped to boost Fed rate hike bets.

Reports of high levels of consumer credit in the UK may have also limited upward movement for GBP/USD today. Figures released by the Bank of England (BoE) indicated that individuals had borrowed an additional £1.8B in consumer credit in June as household costs soar.

At time of writing the GBP/USD exchange rate is at around $1.2169, nearly unchanged from this morning’s opening figures.

Original article continues below:

Pound US Dollar (GBP/USD) Exchange Rate Trends Sideways amid Risk-On Mood

The Pound US Dollar (GBP/USD) exchange rate is trading within a narrow range today. The currency pair could be seeing gains limited by a lack of significant data for Sterling, as well as concerns over further industrial action in the UK.

On the other hand, signs that the US may be heading for a recession may be helping to underpin GBP/USD today. A risk-on impulse may also be limiting losses for the exchange rate.

At time of writing the GBP/USD exchange rate is at around $1.2165, virtually unchanged from this morning’s opening figures.

Pound (GBP) Muted amid BoE Rate Hike Bets

The Pound (GBP) is seeing mixed movements today. The currency is making some gains amid a return of global risk appetite, although a lack of significant data is seeing subdued bets from investors.

Increased bets on aggressive action from the BoE may also be lending support to the Pound today. Many analysts are now anticipating that the central bank may commit to a one-off 0.5% interest rate hike.

The market expectations come after BoE Governor Andrew Bailey signalled last week that such a move was ‘on the table’.

James Smith of ING said:

‘We expect a 50bp rate hike from the Bank of England next week, its first such move this cycle.’

Widespread industrial action in the UK could be limiting gains for Sterling, however. Adding to the country’s ‘summer of discontent’, workers at Felixstowe docks announced yesterday that they would be initiating strike action in August.

US Dollar (USD) Drops as US Enters Technical Recession

The US Dollar (USD) is tumbling against its competitors today amid a risk-on impulse in the markets. Fears that the US economy could be heading for a recession may also be weighing on the currency.

Figures yesterday showed a surprise contraction to the country’s economy for the second consecutive month. Second quarter GDP growth fell by -0.9% year-on-year versus a forecast recovery of 0.5%.

Two quarters of negative growth mean that the US has entered a technical recession.

Dovish signals from the Federal Reserve after its interest rate this week may also be pulling USD lower today. Fed Chair Powell signalled on Wednesday that future hikes would be ‘data-dependent’, with decisions made on a meeting-by-meeting basis.

GBP/USD Exchange Rate Forecast: Will BoE Commit to 0.5% Rate Hike?

Looking to the coming week for the Pound, the final reading of July’s PMIs on Monday and Wednesday could pull the currency lower if they fall as forecast.

The GBP key data for next week will be the BoE’s interest rate decision on Thursday. Markets remain split on the path of the central bank’s next rate hike. An above-forecast 0.5% hike could see Sterling leap.

Additionally, any notable comments in the post-announcement press conference could also prompt movement in the Pound.

For the US Dollar, a predicted climb in the PCE price index could bolster the currency. A rise to the Fed’s preferred method of inflation could increase bets on further Fed rate hikes.

Friday’s fall to non farm payrolls could feed fears of a potential recession as the US economy adds fewer jobs, thereby potentially weakening USD. Should unemployment also remain low on Friday they it could further harm the currency amid signs of a cooling labour market.

A forecast drop to ISM PMIs on Monday and Wednesday may also weigh on USD if they add additional fuel to recession fears.

Gareth Monk

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