Pound US Dollar (GBP/USD) Exchange Rate Plummets as BoE Strikes Dovish Tone
(Updated 15:58, 15/12/2022) The Pound US Dollar (GBP/USD) exchange rate has plummeted this afternoon, following the Bank of England’s (BoE) dovish stance on inflation.
The BoE hedged their bets on further interest rates, stating that further interest rate hikes may be necessary depending on data. Investors interpreted this as an indication that interest rate hikes may begin to slow. As such, investors have begun to withdraw support, sending the Pound fall off a cliff against most major peers.
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Pound US Dollar (GBP/USD) Exchange Rate Slides as Fed Remains Hawkish on Inflation
The Pound US Dollar (GBP/USD) exchange rate is sliding this morning, as Federal Reserve Chair Jerome Powell promised further rate hikes.
At the time of writing, GBP/USD is trading at around US$1.2330, a fall of roughly 0.7% from the morning’s opening rates.
US Dollar (USD) Strengthens as Fed Promises Further Rate Hikes
The US Dollar (USD) is rallying this morning, after last night’s interest rate decision from the Federal Reserve.
Accompanying the expected 50bps rate hike was a speech from Fed Chair Jerome Powell, who promised further rate hikes. Powell went on to signal that rates would be increased and kept at around 5 to 5.25% during 2023.
Furthermore, he argued against the notion that inflation was peaking. He stated:
‘Historical experience cautions strongly against prematurely loosening policy. I wouldn’t see us considering rate cuts until the committee is confident that inflation is moving down to 2% in a sustained way.’
Elsewhere, a risk-averse trading mood prompted by the Fed’s hawkish stance is lending the ‘Greenback’ further support this morning.
Pound (GBP) Slips ahead of BoE Interest Rate Decision
The Pound (GBP) is slipping this morning, as investors await this afternoon’s interest rate decision from the Bank of England (BoE).
While a 50bps hike has already been priced in, the accompanying announcements are going to be the focus for investors. The BoE has reiterated that tightening above 5% is overly restrictive, but appears to be split on further rate hikes.
Michael Hewson, from CMC Markets, explained:
‘The weak economic outlook will play a part in today’s decision with the real possibility of a three-way split on policy, which will make the prospect of a clear message much more difficult.’
As such, a lack of clarity around the BoE’s future decisions may weigh on Sterling through the rest of today’s session.
Elsewhere, industrial action across the UK may be weighing on Sterling further. Today, nurses across the UK are striking to fight for fairer pay in line with inflation. Being the first strike in the NHS’ history, the unprecedented disruption may be pushing investors away from GBP.
Pound US Dollar (GBP/USD) Exchange Rate Forecast: UK Retail Sales to Boost Sterling?
Looking ahead for the Pound, tomorrow brings the release of November’s retail sales data. A fall from 0.6% to 0.3% is expected, with the cost-of-living crisis and inflation likely still squeezing households. If the data prints as forecast, GBP may weaken.
Similarly, the latest manufacturing and services indexes are due to print tomorrow. Further contractions are expected, with the manufacturing index forecast to print at 46.3 down from 46.5, and services down to 48.5 to 48.8. As such, Sterling may weaken as the indexes stoke recession fears.
For the US Dollar, manufacturing and services PMIs are also expected tomorrow. Manufacturing is expected to show little movement but remain in contraction territory. However, the services index is forecast to tick upwards to 46.8 from 46.2. With the data pointing to a mixed picture, USD may slip as the economy remains on the backfoot.