Pound US Dollar (GBP/USD) Exchange Rate Drops as Risk Appetite Sours

Pound US Dollar (GBP/USD) Exchange Rate Slips as US Speaker Lands in Taiwan

(Updated 16:40 02/08/22)

The Pound US Dollar (GBP/USD) exchange rate continued to fall today amid a sustained risk-off market mood. The diplomatic between the US and China weighed on risk appetite as US House Speaker Nancy Pelosi arrived in Taiwan.

An above-forecast fall to US JOLTs job opening figures did little to impede the US Dollar’s (USD) upward momentum, likely bolstering the currency pair. Additionally, bets on the Pound remained subdued ahead of the Bank of England’s interest rate decision on Thursday.

At time of writing the GBP/USD exchange rate is at around $1.2230, which is down around -0.2% from this morning’s opening figures.

Original article continues below:

Pound US Dollar (GBP/USD) Exchange Rate Falls amid Risk-Off Mood

The Pound US Dollar (GBP/USD) exchange rate is tumbling today amid a persistent risk-off mood in the markets. Subdued bets on the Pound ahead of the Bank of England’s (BoE) interest rate decision may also be pulling the currency pair lower.

At time of writing the GBP/USD exchange rate is at around $1.2209, which is down roughly 0.4% from this morning’s opening figures.

Pound (GBP) Slips despite BoE Rate Hike Bets

The Pound (GBP) is falling against most of its peers today. A retreat to global risk appetite is likely causing Sterling to slip. Bets on the currency may also be subdued ahead of Thursday’s interest rate decision from the BoE.

The central bank’s interest rate decision could be underpinning GBP today. Markets have begun to price in a 0.5% rate hike from the BoE amid hawkish signals from Governor Andrew Bailey.

Stuart Cole, head macro economist at Equiti Capital, said:

‘Short term, if the BoE opts for a 25bps hike on Thursday I think sterling will lose ground. The market is expecting at least a 50bps hike and Bailey has kind of suggested this will indeed be delivered.’

Further disruption to the UK’s travel sector may be weighing on the Pound today, however. British Airways announced today that it would be suspending ticket sales for short-haul flights from Heathrow airport.

US Dollar (USD) Climbs as China-US Tensions Increase

The US Dollar (USD) is making gains today amid a risk-on mood in the markets. Fears of a global economic slowdown are likely prompting increased bets of the safe-haven ‘Greenback’.

Diplomatic tensions between the US and China may also be prompting risk-off lows today. The strain on diplomatic ties comes as US House speaker Nancy Pelosi visits Taiwan.

A cautious tone from the Federal Reserve after last week’s interest rate decision may be weighing on USD, however. Fed Chair Jerome Powell signalled last week that future interest rate decisions would be ‘data-dependent’.

A downturn to US treasury bond yields may also be weighing on the currency today.

GBP/USD Exchange Rate Forecast: Will BoE Raise Rates as Forecast?

Looking to the week ahead for the Pound, the final reading of July’s PMI for the service sector may cause losses for the currency if they fall as predicted on Wednesday.

GBP investors will be most keenly awaiting the BoE’s interest rate decision on Thursday. Markets are now largely pricing in the predicted 0.5% rate hike so the impact of the decision on Sterling may be minimal. If the central bank disappoints investors however then the currency could slide.

Any indicators of forward policy for the BoE in the MPC meeting minutes following the decision could also cause movement in the Pound.

For the US Dollar, a drop to JOLTs job openings later today could dent confidence in the currency if investors take is signs of a cooling labour market.

A speech from Fed policymaker Charles Evans today may also push the currency lower if he echoes the central bank’s cautious tone.

Wednesday’s PMI for the non-manufacturing sectors could also see USD fall if the index slips as forecast, potentially prompting further recession fears.

A predicted drop to non farm payrolls figures on Friday could also heighten recession concerns and weigh on USD. On the other hand, if July’s unemployment remains low then it could limit losses for the currency.

Gareth Monk

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