Pound US Dollar (GBP/USD) Exchange Rate Breaks above $1.20 to Hit a Three-Month High

Pound US Dollar (GBP/USD) Exchange Rate Soars as Dismal US PMIs Dent Rate Hike Bets

(Updated 15:30, 23/11/22) The Pound US Dollar (GBP/USD) exchanged rate surged higher this afternoon, adding to this morning’s gains, after the latest US PMIs missed forecasts, causing markets to continue scaling back Federal Reserve interest rate rise bets.

At the time of writing, GBP/USD is trading at a three-month high of $1.2019, having gained 1% on the day.

Pound Sterling (GBP) found early success against the US Dollar (USD) today as an upbeat market mood boosted the riskier UK currency against the ‘Greenback’.

In addition, the supreme court’s ruling against another Scottish independence referendum boosted GBP. A vote on whether Scotland should leave the UK would have added to the political instability that has plagued the Pound this year, so the court’s ruling was welcomed by GBP investors.

Meanwhile, markets began to pare bets for further Fed rate hikes as the US trading session began at 13:00 UCT. US Treasury yields – often an indicator of rate rise bets – began to sharply decline, perhaps spurred on by an unexpected rise in US jobless claims.

The US PMIs later in the afternoon added to USD’s downside after both surveys printed below forecasts. The services PMI unexpectedly dropped to a three-month low. Meanwhile, the manufacturing PMI showed an unanticipated contraction in factory activity, with the PMI score falling to its lowest level since May 2020 – a 30-month low.

These dire results fuelled speculation that the Fed will slow its pace of interest rate hikes amid signs of cooling inflation and a slowing economy. This, in turn, weighed heavily on the US Dollar.

Attention now turns to the Federal Open Market Committee (FOMC) meeting minutes this evening. Could dovish hints dent the Dollar further?

Original article continues below:

Pound US Dollar (GBP/USD) Exchange Rate Gains as Data Exceeds Expectations

The Pound US Dollar (GBP/USD) exchange rate is wavering higher this morning, despite mixed UK data, as a risk-on mood supports the currency pair.

At the time of writing, GBP/USD is trading at around $1.1910, up 0.15% from this morning’s opening levels.

Pound (GBP) Firms following PMI Reports

The Pound (GBP) wavered higher today following some mixed UK PMIs, with a risk-on mood also supporting GBP.

Although service sector and manufacturing activity remained in contraction this month, both exceeded forecasts. The services score held at 48.8, rather than dropping to 48. Meanwhile, manufacturing rose from 45.8 to 46.2.

However, despite the better-than-expected results, the latest data adds to mounting evidence that the UK economy is in recession.

Dr John Glen, Chief Economist at CIPS – the company that co-authored the surveys – said:

‘There was a barely discernible light at the end of the tunnel for private sector businesses in November as they remained in contraction for the fourth month in a row as a result of higher inflation, borrowing costs and energy bills.’

Despite the concerns, GBP investors seem to be celebrating the stronger-than-expected results.

In addition, the increasingly risk-sensitive Pound is enjoying an upbeat market mood.

US Dollar (USD) Wavers Lower ahead of FOMC Minutes

The US Dollar (USD), meanwhile, has seen some choppy trade ahead of the Federal Open Market Committee (FOMC) meeting minutes this evening.

Recent signs that US inflation is easing and dovish comments from policymakers at the Federal Reserve have weighed on the ‘Greenback’ over the past few weeks. As a result, USD investors are rather skittish ahead of the meeting minutes tonight.

As European trade opened today, US Treasury yields – often an indicator of interest rate rise expectations – spiked sharply. Since then, they have ticked steadily lower.

Treasury yields also impact the US Dollar, with the turbulence causing some mixed movement in USD.

However, a risk-on impulse in markets is applying consistent pressure to the safe-haven American currency. Better-than-expected PMIs from the Eurozone, as well as the UK, seem to be cheering European investors.

GBP/USD Exchange Rate Forecast: Fed Minutes in Focus

Looking ahead, the latest US durable goods orders report is out this afternoon. Economists expect orders to have grown by a further 0.4%, which could suggest that the American manufacturing sector remains healthy.

Later on, the US PMIs are out. Manufacturing is forecast to have slowed to a stop while the services sector is expected to remain in contraction, despite a modest improvement.

If the economic data is broadly positive, it could raise expectations that the Federal Reserve will continue to hike interest rates. However, it could also cheer global markets, which would weigh on the safe-haven ‘Greenback’. Either way, we may see some volatility in USD later today.

The focus, however, will be on the FOMC meeting minutes. If policymakers signal that the pace of interest rate rises will start to slow, USD could drop.

As for the Pound, UK data is in short supply through most of the day, so domestic headlines could drive GBP exchange rates.

In the evening, Bank of England (BoE) Chief Economist Huw Pill is due to speak. Any hints about the path of monetary policy could impact the Pound.

Samuel Birnie

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