Pound US Dollar Exchange Rate Climbs above $1.20 ahead of Fed Powell Speech

Pound US Dollar Exchange Rate Climbs as Markets Brace for Powell Speech

The Pound US Dollar (GBP/USD) exchange rate is ticking higher this morning in advance of a speech by Federal Reserve Chair Jerome Powell.

At the time of writing the GBP/USD exchange rate is trading at around $1.2015. Up around 0.6% from this morning’s opening levels.

US Dollar (USD) Subdued ahead of Fed Powell Speech

The US Dollar (USD) is on the defensive this morning, ahead of a speech by Fed Chair Jerome Powell later this evening.

Recent signals from the Fed have pointed to a more dovish consensus forming within the bank. Last week’s minutes revealed a ‘substantial majority’ of policymakers support slowing the pace of the Fed’s rate hikes.

But Powell has generally struck a more hawkish note than his peers in recent months. If he maintains this tone in today’s speech it could revive demand for the US Dollar.

If the US Dollar remains offered despite his comments this may indicate the USD selling bias is more embedded and the currency is likely to continue to weaken through to the end of 2022.

Economists at ING suggest:

‘USD price action after Chair Powell’s speech should also tell us something about FX positioning. If the US Dollar fails to rally on a hawkish speech it may continue to tell us that the market is caught long dollars at higher levels and that some further consolidation may be due into December.’

Pound (GBP) Gains Capped as BoE Plays Down Rate Hike Expectations

While it is climbing against the US Dollar, the Pound (GBP) is struggling to replicate this success against its other peers this morning.

This follows some slightly dovish comments from Bank of England (BoE) Chief Economist Huw Pill at the start of the session.

Pill suggested that UK inflation will plummet back to earth in the second half of 2023. Assuming there are no more surprises with energy prices.

Pill said:

‘We are expecting to see headline inflation tail off in the second half of next year, in fact quite rapidly, on account of those base effects.’

Sterling fell as he added that the bank’s base case will not involve interest rates reaching 5.25%.

Pound US Dollar Exchange Rate Forecast: Upbeat Employment Figures to Buoy USD?

In the run up to Powell’s speech, movement in the Pound US Dollar exchange rate could be influenced by the publication of the latest ADP employment figures.

Today’s data is expected to report the US private sector added another 200,000 jobs this month. Potentially providing some lift to USD exchange rates. Particularly as a robust print will bolster expectations for Friday’s more influential non farm payrolls release.

GBP investors, meanwhile, will turn their attention to tomorrow’s UK manufacturing PMI. Finalised figures for November could drag on Sterling if growth in the factory sector is revised lower.

Matthew Andrews

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