Pound US Dollar (GBP/USD) Exchange Rate Firms Despite UK Government Borrowing Climb

Pound US Dollar (GBP/USD) Exchange Rate Gains amid Risk-On Mood

(Updated 16:41, 22/11/22)

The Pound US Dollar (GBP/USD) exchange rate remained in positive territory over the rest of the day. The currency pair failed to break out of this morning’s range, however.

The pair found continued support from a risk-off market mood. Bank of England (BoE) rate hike bets also lent continued support to GBP/USD.

A persistent downturn in US Treasury bond yields also kept GBP/USD buoyant over the course of the day.

At time of writing the GBP/USD exchange rate was at around $1.1861, which was up around 0.3% from this morning’s opening figures.

Original article continues below:

Pound US Dollar (GBP/USD) Exchange Rate Bolstered by Risk-On Impulse

The Pound US Dollar (GBP/USD) exchange rate is rising today. A risk-on impulse is helping the currency pair to climb. The pair may also be seeing gains amid dovish Federal Reserve comments.

Gains for GBP/USD may be being capped by a rise in UK government borrowing, however.

At time of writing the GBP/USD exchange rate is at around $1.1547, which is up around 0.3% from this morning’s opening figures.

Pound (GBP) Climbs Against USD, Falls Elsewhere as Government Borrowing Rises

The Pound (GBP) is ticking higher against some its rivals including the US Dollar (USD) today. A risk-on impulse in the markets is lending support to Sterling against its safer peers.

On the other hand, a poor outlook for the UK economy is continuing to keep gains for the currency limited.

An increase in government borrowing may also be weighing on the Pound today, and adding to the UK’s bleak outlook. The UK government’s energy support scheme and the impact of a recession pushed borrowing to £13.5bn in October.

Economist predicted that the state of the UK government’s finances would only get worse in the coming months, however.

Further industrial action in the UK may also be keeping pressure on Sterling today. Security workers who deliver cash to the country’s banks and supermarkets are set to strike in December.

US Dollar (USD) Edges Lower amid Return of Risk Appetite

The US Dollar (USD) is slipping today amid a risk-on impulse in the markets. A correction in US yields after days of sustained rallies for USD may also be pushing the currency lower.

USD is potentially finding support from hawkish bets on further interest rate hikes from the Federal Reserve. Markets are speculating that rates could climb as high as 9bps.

Lindsey Piegza, chief economist at securities firm Stifel, said:

‘The recent improvement in inflation pressures turning over from peak levels has seemingly blinded many investors to the need for the Fed to aggressively continue along a pathway to higher rates.’

Dovish comments from Fed policymaker Loretta Mester may be limiting rate hike bets, however. Speaking on Monday, Loretta signalled that the Fed would need to slow down its pace of rate hikes at its next meeting.

GBP/USD Exchange Rate Forecast: Will Poor UK Private Sector Performance Weigh on GBP?

Looking ahead for the Pound, PMI data for the UK’s private sectors on Wednesday could pull the currency lower if it prints as forecast. The UK’s private sectors are expected to have contracted in November. The data could worsen the country’s long-term economic prospects.

The Confederation of British Industry’s (CBI) latest industrial trends orders could also pull Sterling lower on Thursday. The measure of the industrial sector’s health is forecast to slip even lower.

Also on Thursday, speeches from BoE policymakers could lend support to GBP if they signal further interest rate hikes.

For the US Dollar, speeches from multiple Fed board members over the rest of the week could bolster USD. Markets are still anticipating a minimum 50bps from the central bank at their next meeting.

Initial jobless claims figures on Wednesday could prompt losses in USD, however. The figures are expected to climb which would indicate a cooler labour market.

Also on Wednesday, PMI figures for the US private sectors could impact the currency. The manufacturing sector is forecast to stall whereas the services sector is expected to contract. The data could pull USD lower.

Finally for the US Dollar, the latest FOMC minutes could boost USD if markets pick up on any hawkish signals.

Gareth Monk

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