Pound US Dollar Exchange Rate Strengthens Despite Mounting Economic Pressures
The Pound US Dollar (GBP/USD) exchange rate is buoyant despite the Bank of England (BoE) warning of longest recession in 100 years.
At time of writing the GBP/USD exchange rate is trading around $1.1225, a half percent climb from this morning’s opening levels.
Pound (GBP) Strengthens Despite BoE’s Recession Warning
The Pound is experiencing mixed success this morning against its peers as the markets continue to digest the BoE’s warnings that the UK is already in a recession.
After the central bank met expectations of a 75bps rate hike, the policy statement that followed noted that further rate increases may be required. BoE Chief Economist Huw Pill told CNBC today that the central bank is committed to bringing inflation down to its target of 2%. However, concerns of slowing growth too severely weigh heavily and could hinder the BoE. Pill explained:
‘What we are seeking to do, we’re always seeking to do, is to find that balance that gets us back to our 2% inflation target without generating unnecessary and costly problems in the real side of the economy.
‘Creating that balance, signalling that balance, that was really our key message yesterday.’
Meanwhile, construction PMI printed above forecast as the sector marked a second month of expansion. Construction activity continues to rise in October, but new orders dropped for the first time since May 2020.
US Dollar (USD) Softens ahead of Key Labour Market Data
Meanwhile, the US Dollar is struggling for demand this morning amid a positive risk sentiment.
Snapping a six-day positive streak, the US Dollar Index is trading in negative trading as investors await the crucial labour market reports. A shift in market sentiment has seen demand in the ‘Greenback’ wane. Rumours continue to rumble about China relaxing its strict zero-Covid policy as stock markets rallied. Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, explains:
‘China’s impenetrable policies have caused a great deal of economic pain, both inside and outside the country. Supply chains, manufacturing and demand have all come under very serious pressure. Any indication that some rules could be relaxed would be an immediate dose of grease in the jarring cogs of China’s economy.’
Providing some modest support to the US Dollar is the maintained hawkish stance from the Federal Reserve. The central bank confirmed its more concerned with inflationary pressures than downside economic growth concerns. The upcoming labour market data from the US Bureau of Labor Statistics will remain a key focus today.
Pound US Dollar Forecast: US Labour Market Data to Rally the Greenback?
Looking ahead, the Pound US Dollar exchange rate could see further movement with the release of key bellwether data for the US Dollar. Labour reports, including non-farm payrolls and the unemployment rate could see the ‘Greenback’ climb if market forecasts prove true.
Meanwhile, a planned speech from BoE Chief Economist Huw Pill could dictate further movement. Pill is expected to expand on comments from yesterday’s rate hike.