Pound US Dollar (GBP/USD) Exchange Rate Boosted by Risk-On Market Mood
The Pound US Dollar (GBP/USD) exchange rate is strengthening today, as risk-positive trade supports GBP.
At the time of writing, GBP/USD is trading at around US$1.2011, rising by roughly 0.4% from this morning’s opening rates.
Pound (GBP) Propelled by Risk-On Market Mood
The Pound (GBP) is enjoying gains this morning against most peers, as a risk-on market mood dominates European trade.
Some riskier currencies, such as the Australian Dollar (AUD) have been propelled higher due to closer links with China.
The risk-on mood prompted GBP investors to shrug off a weakening housing market, a clear signifier of economic slowdown.
Yet, as they demonstrated the impact the cost-of-living crisis was having on the UK economy, investors remained mindful.
Sterling’s gains may be further capped by expectations for upcoming speeches from Bank of England (BoE) policymakers. Governor Andrew Bailey is giving testimony in the House of Lords later today, to discuss the BoE’s monetary policy.
US Dollar (USD) Drags amid Chinese Covid Optimism Boosts Market Mood
The US Dollar (USD) is weakening this morning, as an increase in Chinese Covid vaccinations lifts the market mood.
Following rare protests across Chinese cities, the government has taken steps to increase the vaccine rollout to over 80s. By taking this step, investors believe the country is moving towards a more relaxed Covid policy, prompting risk-positive trade.
Adding further pressure to the ‘Greenback’ was a schism between analysts and the Federal Reserve. New York Fed President John Williams stated that they need to press forwards with rate rises.
Meanwhile, St Louis Fed President James Bullard stated the Fed has ‘a ways to go to get restrictive.’ Analysts were unimpressed with the hawkish rhetoric, with inflation data not corroborating the need for more restrictive tightening.
Pound US Dollar (GBP/USD) Exchange Rate Forecast: US Employment Data to Dent USD?
Looking ahead for GBP/USD, the core catalyst of movement for the exchange rate may be Wednesday’s US employment data.
US private sector job creation is expected to fall from 239,000 to 200,000. JOLTs job openings are expected to fall from 10.717 million to 10.3 million. Should both data sets print as forecast, USD may suffer on the back of a tightening labour market.
On Wednesday evening, Federal Reserve Chair Jerome Powell is due to deliver a speech. Should he continue the Fed’s hawkish stance, USD may strengthen as rate hike bets increase.
However, investors have been pulling away from the hawkish fed, with inflation seeming to have peaked. As such, a hawkish stance may weaken USD.
For the Pound, Bank of England (BoE) policymakers may shape Sterling’s direction. Chief Economist Huw Pill is due to speak tomorrow, should he continue the BoE’s hawkish stance, GBP may rally.