Pound US Dollar (GBP/USD) Exchange Rate Climbs amid Strong Risk Appetite Across Markets
The Pound US Dollar (GBP/USD) exchange rate is rallying this morning, as a risk-on market mood lifts Sterling.
At the time of writing, GBP/USD is trading at around US$1.2166, a rise of roughly 0.6% from the morning’s opening rates.
Pound (GBP) Rallies as Risk-On Mood Takes Hold
The Pound (GBP) is enjoying gains this morning, as an upbeat market mood moves to support the increasingly risk-sensitive currency.
However, the Pound’s gains may be being capped by fears from UK businesses over the current energy support. Chancellor Jeremy Hunt is expected to announce a change in the current support package.
The new package is expected to be a shift to a discount on wholesale costs, rather than a fixed energy price. Make UK found that as many as 60% of UK bosses were growing more concerned about blackouts affecting their business.
As such, the pessimistic outlook for UK businesses could be weigh on the Pound. However, this may be alleviated by investors anticipating the Bank of England Chief Economist Huw Pill’s speech this afternoon.
Due to speak at 16:30, Pill may have room to strike a hawkish tone towards inflation. Should he do this, he may bring further support to Sterling.
US Dollar (USD) Stumbles amid Upbeat Market Mood
The US Dollar (USD) is softening this morning, as an upbeat market mood shifts support away from the safe-haven currency.
The shift was prompted by Friday’s service sector index, which reflected a contraction. With the US economy beginning to seem precarious, investors have shifted focus to riskier currencies.
Elsewhere, China’s continuing pivot away from its former zero-Covid is exerting further pressure on the US Dollar. Analysts at ING explored this further, stating:
‘Growing convictions that the Fed will have to ease later this year come at a time when China is dismantling its zero-Covid architecture and policy measures – especially in the property sector – are reorienting towards growth.’
With trading conditions thin throughout today, the ‘Greenback’ may continue to trade on risk-appetite.
Pound US Dollar (GBP/USD) Exchange Rate Forecast:
Looking ahead for the US Dollar, Federal Reserve Chair Jerome Powell is due to deliver a speech on Tuesday. This could boost the ‘Greenback’ if he reaffirms the Feds’ intention to curtail inflation.
Further ahead on Thursday, December’s YoY inflation data is due to print. A fall is expected from 7.1% to 6.5% in headline inflation, while core inflation is forecast to fall from 6% to 5.7%. This could weaken the US Dollar, by pointing to a continued fall in inflation.
For the Pound, Tuesday brings the YoY British Retail Consortium retail sales data for December. A fall from 4.1% to 2.5% is expected, which could weaken Sterling due to the UK economy’s reliance on retail.
Friday brings the latest GDP data for the UK. November’s data is forecast to show a contraction of 0.3%, down from 0.5%. If this prints as forecast, it may bring gloom to Sterling by reasserting the bleak economic outlook.
Elsewhere, trading conditions are thin for GBP, meaning risk-sentiment may be the core driver of movement for most of the week. Due to Sterling’s increasingly risk sensitive nature, an upbeat market mood could lift the Pound against safer peers.