Pound US Dollar (GBP/USD) Exchange Rate Stumbles as Market Woes Continue
(Updated 16:00, 27/9/22) After initially edging slightly higher this morning, the Pound US Dollar (GBP/USD) exchange rate has now started to slip. GBP investors seemingly pinned their hopes Bank of England (BoE) Chief Economist Huw Pill and Chancellor Kwasi Kwarteng to reassure markets today, and both failed to do so.
The Pound (GBP) continues to face a crisis as investors lose confidence in the government’s approach to fiscal policy. Sterling managed to tick higher against the US Dollar (USD) earlier today, although it remained close to a 37-year low, as traders anticipated a possible announcement from the Chancellor or the BoE’s Pill.
Kwarteng met with senior City financiers today. What was scheduled to be a polite conversation presumably became a crisis meeting following Sterling’s collapse and the alarming sell-off in government bonds. If any analysts were hoping for reassurance, they were disappointed. The Chancellor seemingly doubled down on his plans, telling bankers:
‘I’m confident that with our growth plan and the upcoming medium-term fiscal plan — with close co-operation with the Bank — our approach will work.’
Meanwhile, Huw Pill also disappointed markets. While the BoE Chef Economist hinted at more aggressive action from the bank, he also poured cold water on expectations of an emergency intervention. Pill said:
‘The better way to run monetary policy is to adopt a more considered approach and low-frequency approach.’
As for the US Dollar, a larger-than-forecast rise in US consumer confidence may have given the ‘Greenback’ a modest lift. However, movement remains muted today.
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Pound US Dollar (GBP/USD) Exchange Rate Languishes at Multi-Decade Low
The Pound US Dollar (GBP/USD) exchange rate remains on a crisis footing today, after hitting a record low at the start of the week, as markets are gravely concerned about the UK government’s approach to fiscal policy.
At the time of writing GBP/USD was trading at $1.0786, having barely changed from this morning’s opening levels.
Pound (GBP) Remains Compromised following Tax Shock
The Pound (GBP) is languishing at a 37-year low against the US Dollar (USD) today as markets remain deeply worried about the state of the UK public finances.
Following the government’s mini-budget on Friday, in which Chancellor Kwasi Kwarteng unveiled £45bn in unfunded tax cuts for the wealthiest in UK society, investors lost confidence in the UK’s approach to fiscal policy.
Despite a meltdown in UK markets, Kwarteng then spoke of further tax cuts over the weekend. This saw GBP/USD slump to an all-time low of around $1.0487 early on Monday morning.
Sterling has since risen back to around $1.08, though this remains historically low for the Pound.
At the time of writing, GBP/USD seems to have stabilised as the volatility of recent days dies down. Investors may be waiting for a speech from Bank of England (BoE) Chief Economist Huw Pill and the Chancellor’s crisis meeting with senior City financiers before placing any fresh bets on GBP.
US Dollar (USD) Muted amid Mixed Market Mood
Meanwhile, the US Dollar is somewhat subdued amid a lukewarm sentiment in markets.
After a recent bout of risk aversion, the market mood has steadied. Asian markets were up overnight after Beijing asked fund managers and brokers to stabilise the markets ahead of the Chinese Communist Party Congress.
European stock markets were also up at the open, although they have since trimmed their gains.
Despite reassuring signs in equity markets, a bearish undercurrent remains. Escalating tensions in the Russia-Ukraine war are troubling investors, as are expectations of rising interest rates and the possibility of a global recession.
Amid this tepid market mood, the safe-haven US Dollar is trading sideways.
GBP/USD Exchange Rate Forecast: Can the BoE and the Treasury Soothe Markets?
At noon today, BoE Chief Economist Huw Pill is due to speak. Commentators may be counting on Pill to calm markets somewhat, although whether he’ll be able to soothe investors remains to be seen. Any hints that the BoE could intervene with an emergency rate hike may support Sterling. However, if Pill demurs – as Governor Andrew Bailey did yesterday – then the Pound could slip again.
Meanwhile, Kwasi Kwarteng is due to meet with senior City financiers today. The meeting with leaders from banks, insurance companies and asset managers was meant to be a cordial conversation about growth. Instead, the Chancellor will need to convince bankers that he can restore investor confidence in government fiscal policy. If the meeting yields any notable outcomes, it could move Sterling.
As for the ‘Greenback’, the latest US durable goods orders figure this afternoon could cause some movement. Economists expect new orders for manufactured goods to have declined by 0.4% last month. Such a result could dent USD.
However, a forecast rise in US consumer confidence and potentially hawkish comments from Federal Reserve officials could lift the ‘Greenback’ later on.