Pound US Dollar (GBP/USD) Exchange Rate Leaps as Fed’s Powell Signals Slower Rate Hikes

Pound US Dollar (GBP/USD) Exchange Rate Soars amid Further Signs of Cooling US Inflation

(Updated 16:50 01/12/22)

The Pound US Dollar (GBP/USD) exchange rate soared today. The Pound (GBP) climbed to its highest level against the US DOllar (USD) since August 2022.

The currency pair was pushed higher by signs of cooling inflation in the US. The PCE price index, the Fed’s preferred measure of inflation, fell to 6% in October.

Signs of weakness in the US manufacturing sector also helped GBP/USD to rise today. The US manfuacturing sector contracted for the first time since June 2020 in November of this year. Weaker demand continued to harm output in the sector as well as a downturn in hiring.

At time of writing the GBP/USD exchange rate was at around $1.2249, which is up roughly 1.5% from this morning’s opening figures.

Original article continues below:

Pound US Dollar (GBP/USD) Exchange Rate Bolstered by Signs of Fed Slowdown

The Pound US Dollar (GBP/USD) exchange rate is rising today. The currency pair could be seeing a boost from a risk-on market mood. Additionally, confirmation from Federal Reserve Chair Jerome Powell of a slower pace of policy tightening could also be bolstering GBP/USD.

At time of writing the GBP/USD exchange rate is at around $1.2143, which is up roughly 0.6% from this morning’s opening figures.

US Dollar (USD) Slumps as Powell Signals Fed Rate Hike Slowdown

The US Dollar is falling this morning. A return of global risk appetite is likely weighing on the safe-haven ‘Greenback’. A decline in US Treasury bond yields may also be keeping pressure on USD.

A dovish speech from Fed Chair Jerome Powell late on Wednesday may also be pushing the currency lower. Powell signalled that it the Fed could begin to slow its pace of interest rate hikes as early as December.

On the other hand, Powell was also quick to outline that the Fed still had work to do in its battle with soaring inflation. These signals of further rate hikes may be helping to stem USD’s losses today.

Anna Wong, Bloomberg’s chief US economist, said:

‘Powell clearly rejected the notion of a shock-therapy style of rate hikes for inflation risk management purposes. Rather, he favors moving more slowly amid uncertainty and holding rates high for a longer period.’

Pound (GBP) Climbs Despite Increasingly Poor Outlook for UK Economy

The Pound (GBP) is climbing today. The currency may be benefitting from a risk-on trading impulse as well as reduced rate hike expectations for the US Federal Reserve.

On the other hand, data adding to the UK’s poor forward outlook may be capping Sterling’s gains today. UK food price inflation hit a fresh high of 12.4% in November, adding to fears surrounding the country’s cost-of-living crisis.

A sharp slide in the UK housing market may also be keeping pressure on GBP today. UK house prices fell by 1.4% month-on-month in November. This was the biggest monthly drop since June 2020.

The final reading of November’s manufacturing sector PMI may also be adding to the Pound’s woes today. The data confirmed a contraction in the sector as UK firms continued to be hit by soaring costs and reduced demand.

GBP/USD Exchange Rate Forecast: Will US Jobs Data Point to Tighter Labour Market?

Looking ahead for the US Dollar, a forecast slip in the PCE price index later today could weigh on the currency. A drop in the Fed’s preferred measure of inflation could see markets pare back Fed rate hike bets.

Also today, November’s manufacturing PMI could also pull USD lower if the sector contracts as forecast.

The final driver for USD today are speeches from several Fed policymakers. Investors will be watching for any hints of the pace of the central bank’s policy tightening, with dovish signals potentially weighing on the currency.

Friday’s US jobs data could help to bolster the US Dollar, however. November’s unemployment is forecast to remain at record lows, whilst non farm payrolls figures are expected to ease. If the data prints as forecast, then investors may see it as a sign of tight labour and push USD higher.

With no significant data left for Sterling this week, the currency could struggle under the UK’s poor outlook. Any signals of the Bank of England’s (BoE) forward policy could also cause movement in the Pound.

Gareth Monk

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