Pound US Dollar (GBP/USD) Exchange Rate Pares Gains Following BoE’s 50bps Rate Hike

GBP/USD Exchange Rate Slips from Best Levels Following BoE Rate Decision

(Updated 13:15, 22/9/22) The Pound US Dollar (GBP/USD) exchange rate is trading with modest gains this afternoon. The pairing having trimmed a good portion of its morning rally.

To the disappointment of GBP investors, the Bank of England delivered a 50bps rate hike at its September meeting.

A dovish split within the BoE’s monetary policy committee is also dragging on Sterling sentiment. Policymakers voted 5-4 for a 50bps increase, but with one member voting for a more modest 25bps hike.

However, limiting the Pound’s losses was the bank’s warning that it is prepared to be more ‘forceful’ with future rate hikes.

At the same time, the US Dollar remains on the backfoot. USD investors continue to book their profits following yesterday’s post-Fed surge.

Original article continues below:

Pound US Dollar Exchange Rate Rebounds from 37-Year Low as BoE Rate Decision Looms

The Pound US Dollar (GBP/USD) exchange rate is rallying this morning. But will the Bank of England’s (BoE) looming interest rate decision reverse these gains later this afternoon?

At the time of writing the GBP/USD exchange rate is trading at around $1.1341 Up roughly 0.7% from this morning’s opening levels.

Pound (GBP) to Plunge if BoE Delivers 50bps Rate Hike?

Aside from rallying against the US Dollar (USD). The Pound (GBP) is mostly subdued this morning as GBP investors brace for the BoE’s upcoming interest rate decision.

Economists are currently split on whether the BoE will stay the course and deliver another 50bps rate hike, or if the bank sees the value in accelerating its tightening cycle with a 75bps increase.

A 50bps hike could see Sterling sink this afternoon. GBP investors are likely to view this as inadequate in light of 75bps increases from the Federal Reserve and European Central Bank (ECB).

However there are doubts that even a 75bps hike will be enough to prop up the Pound, amid an increasingly bleak outlook for the UK economy.

Analysts at Commerzbank suggest:

‘Even a 75 bps rate hike is not likely to be sufficient to provide a lasting breather for Sterling. The dire growth outlook, rising government debt and high current account deficit point towards depreciation pressure on Sterling continuing for now. ‘

The Pound US Dollar exchange rate fell below $1.13 for the first time in 37-years yesterday. Could a negative reaction to today’s BoE decision see the pairing grind toward the next key barrier of resistance at $1.10?

US Dollar (USD) Reverses Post-Fed Gains amid Profit Taking

The US Dollar (USD) is trending lower this morning as the currency appears to fall victim to a bout of profit taking after soaring on Wednesday.

The ‘Greenback’ caught notable bids yesterday in the wake of the Federal Reserve’s latest policy meeting.

The Fed delivered its third consecutive 75bps rate hike. While the Fed’s so called ‘dot plot’ signalled the bank expects interest rates to rise to 4.4% by December.

Fed Chair Jerome Powell also rattled markets as he said the Fed couldn’t rule out a recession:

‘We have always understood that restoring price stability while achieving a relatively modest increase in unemployment and a soft landing would be very challenging. And we don’t know. No one knows whether this process will lead to a recession or if so, how significant that recession would be.’

Pound US Dollar Exchange Rate Forecast: Underwhelming UK PMIs to Pile Pressure on Sterling?

Looking past the BoE rate decision to the end of the week. The Pound US Dollar exchange rate could be undermined by the publication of the UK’s latest PMIs.

September’s preliminary figures are forecast to report another contraction in the manufacturing sector. More worrying however is the expected stalling of growth in the UK’s vital service sector.

This could pile even more pressure on Sterling. A weak performance by the private sector this month is likely to reaffirm fears the UK may already be in a recession.

Another sizable slump in the US service sector, meanwhile, may not impact the US Dollar in the same manner. A gloomier outlook for the US economy could raise concerns over global growth and boost demand for the safe-haven currency.

Matthew Andrews

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