Pound US Dollar (GBP/USD) Exchange Rate Jumps as Pound Propelled by Risk-On Trade
(Updated 16:15, 06/12/2022) The Pound US Dollar (GBP/USD) is strengthening this afternoon as the markets shift towards risk-on trade.
As the Pound has become increasingly risk-sensitive of late, a healthy risk appetite developing across markets is pulling investors towards Sterling. As such, GBP is strengthening against the safe-haven US Dollar.
Similarly, the ‘Greenback’ has taken a hit as investors move to try and figure out the Federal Reserve’s next tightening move. With markets expecting a 50bps hike, recent positive data has opened up the possibility for a 75bps hike.
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Pound US Dollar (GBP/USD) Exchange Rate Muted as Market Mood Remains Mixed
The Pound US Dollar (GBP/USD) exchange rate is narrowing this morning, as the global market mood becomes mixed.
At the time of writing, GBP/USD is trading at around US$1.2184, displaying little movement from the morning’s opening rates.
US Dollar (USD) Mixed amid Tepid Market Mood
The US Dollar (USD) is trading sideways this morning, allowing the ‘Greenback’ to consolidate overnight gains.
With yesterday’s promising private sector data, investors have grown hopeful that the Federal Reserve can continue to raise interest rates. As such, the ‘Greenback’ is beginning the day in solid health.
However, further news from China about their Covid policy is leading to a small uptick in risk appetite. With the economic superpower beginning to pull away from zero-Covid, currencies linked to China are seeing support against USD.
As such, the ‘Greenback’ may be seeing capped gains during today’s session due to a lack of substantial data. Similarly, with Fed officials in blackout mode ahead of next week’s meeting, investors are in the dark regarding rate hikes.
Pound (GBP) Muted by Mixed Domestic News
The Pound (GBP) is directionless this morning, as a lack of economic data leads investors to focus on domestic headlines.
The UK’s agriculture sector is struggling, with the National Farmer’s Union (NFU) warning of an impending food supply crisis.
The NFU has highlighted the impact soaring inflation is having on agriculture, with the prices of fertiliser and fuel increasing sharply. Similarly, the increased checks brought about by Brexit have served to limit farmers.
Minette Batters, the NFU President, expanded upon this further. She stated:
‘At a time when global volatility is threatening the stability of the world’s food production, food security and energy security. I fear the country is sleepwalking into further food supply crises, with the future of British fruit and vegetable supplies in trouble.’
Cushioning GBP however, is the news that food inflation has dipped for the first time in 21 months. Kantar published a report this morning which showed that food inflation in November fell to 14.6%. The small drop is welcome, but investors have remained mindful of inflation remaining at record highs.
Pound US Dollar (GBP/USD) Exchange Rate Forecast: US PPI to Boost USD?
Looking ahead for the US Dollar, the core driver of movement is likely to be Friday’s PPI releases. With inflation showing signs of cooling, no change is forecast for headline PPI.
However, core PPI is expected to increase to 0.2%. Should these monthly releases print as forecast, USD may strengthen with the expectation of higher rate hikes from the Federal Reserve.
Elsewhere, a lack of significant data leading up to Friday may lead the ‘Greenback’ to trade on market sentiment. Risk-off trade could lend support to the safe-haven currency.
For the Pound, macroeconomic data is thin on the ground. As such, domestic headlines are likely to be the core focus for investors. With the UK’s economic outlook continually darkening, any further news may weaken Sterling.
However, with the Pound becoming increasingly risk-sensitive, risk appetite may serve to boost Sterling.