Pound US Dollar (GBP/USD) Exchange Rate Rockets amid Optimistic Markets
(Updated 15:58, 25/10/22) The Pound US Dollar (GBP/USD) exchange rate is soaring this afternoon, as GBP investors react with optimism to Sunak’s first day as UK PM.
GBP has risen to levels not seen since before Truss’ mini-budget. At the time of writing, GBP/USD is trading at around US$1.1464, a leap of roughly 1.4% from the morning’s rates.
Investors are reacting with optimism to Sunak taking office, especially towards his continuation of Chancellor Jeremy Hunt’s fiscal plan. This mood has seen bond yields continue to recover too, as stability seems to be back in UK politics.
Elsewhere, the US Dollar has succumbed to a risk-on market mood, seeing a fall against all major peers.
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Pound US Dollar (GBP/USD) Exchange Rate Narrows as Sunak Expected to Calm Investors
The Pound US Dollar (GBP/USD) exchange rate is lacking direction this morning, as investors await the first moves from new UK Prime Minister Rishi Sunak.
At the time of writing, the GBP/USD exchange rate is trading at around US$1.1321, showing little movement from the morning’s opening rates.
Pound (GBP) Rallies as Sunak Takes the Stage amid Economic Gloom
The Pound (GBP) is enjoying a modest rally this morning against most major peers, as investors anticipate Rishi Sunak’s first day as Prime Minister.
With Sunak’s background as a former chancellor, investors are expecting him to tackle the UK’s economic challenges head on.
The Director General of the CBI lobby group, Tony Danker, stated:
‘[He] is now coming in at a time of great uncertainty with tough choices ahead. The new prime minister can lose no time in easing the impact of market turmoil on households and firms and helping to restore fiscal credibility.’
Sunak’s appointment comes as the economic outlook for the UK continues to darken. With inflation remaining high, the Office for National Statistics (ONS) highlighted specific price increases in low-cost groceries.
The ONS’ data showed that inflation had increased by 17% over the last year for the lowest cost food items. By demonstrating the effect the cost-of-living crisis was having on consumers, the data may have capped GBP’s gains.
Sunak will become PM after meeting the King this afternoon. Investors will be anticipating his new cabinet and any policy hints.
US Dollar (USD) Tepid as Slower Fed Rate Rises Expected
The US Dollar (USD) is experiencing muted trade this morning, as investors speculate the Federal Reserve’s future interest rate hikes could be more modest in scope.
USD investors are reacting to the news that American business activity has contracted for the fourth straight month. Monday’s flash PMI readings came in below forecast, which prompted anxiety around the US economy.
These contractions suggest that the Fed’s aggressive rate hikes were softening the economy. This in turn has stoked expectations that the Fed will slow the pace of hikes, muting USD.
Hani Redha, the portfolio manager for Pinebridge Investments expanded on this:
‘The potential relief that investors feel in terms of coming towards the end of the hiking cycle, that seems to dominate over the grinding lower of earnings estimates.’
Pound US Dollar (GBP/USD) Exchange Rate Forecast: US Economy to Return to Growth?
Looking ahead, Thursday will see the release of GDP data for the US, which may weigh heavily on the pairing.
With Q3’s GDP growth rate expected to increase from -0.6% to 2.4%, the US economy is demonstrating signs of returning to growth. This may strengthen the ‘Greenback’ because the safe-haven currency will be a safe bet during trying economic times ahead.
For GBP, the core catalyst of movement may be Sunak and his cabinet. With fiscal orthodoxy expected, how his government aims to tackle the UK’s economic problems may buoy Sterling.