Pound US Dollar Exchange Rate Holds Below $1.22
The Pound US Dollar (GBP/USD) exchange rate is trading in a narrow range so far 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 $1.2171. Virtually unchanged from this morning’s opening levels.
US Dollar (USD) Steady ahead of Powell Speech
The US Dollar (USD) is holding steady this morning as investors await a speech by the Fed’s Jerome Powell later this afternoon.
USD investors will be hoping Powell will offer more insight into the Fed’s monetary policy outlook for 2023.
Fed rate hike bets have eased in recent weeks, particularly in the wake of the latest US payroll release. The US Dollar plunged on Friday as weaker-than-expected earnings figures has eased concerns that US inflation may less sticky than feared.
This reinforced expectations the Fed will further slow the pace of its interest rate hikes and deliver a 25bps increase in February.
However the US Dollar could rebound this afternoon if Powell strikes a broadly hawkish tone by signalling the Fed is still concerned that inflation is too high.
Pound (GBP) Muted amid Dovish BoE Expectations
The Pound (GBP) is subdued this morning. Sterling sentiment is under pressure amid dovish expectations for Bank of England (BoE) monetary policy in 2023.
An increasingly gloomy outlook for the UK economy is stoking expectations the BoE could halt its current tightening cycle in early 2023.
This is also supported by a notably dovish split within the Monetary Policy Committee (MPC) at the BoE’s latest policy meeting. Two members broke ranks to call for interest rates to be left on hold, signalling appetite for further hikes is waning.
The Pound is also struggling to find support amid concerns over the end of the government’s business energy support scheme.
Chancellor Jeremy Hunt announced earlier this week that the current scheme will expire at the end of March.
GBP investors fear the withdrawal of support could be a ‘cliff-edge’ for business and force many to scale down or even close.
Pound US Dollar Exchange Rate Forecast: US Inflation to Infuse Volatility in USD?
Looking past Powell’s speech, the main catalyst of movement in the Pound US Dollar exchange rate later in the week is likely to be the latest US consumer price index.
December’s CPI release is forecast to report US inflation cooled for the sixth consecutive month. Further confirmation that consumer price pressures are easing will no doubt weigh on the US Dollar.
Another larger-than-expected drop in inflation could even trigger another sharp plunge in USD.
Meanwhile with GBP data still thin on the ground, the Pound could struggle to find momentum through the middle of the week.