Pound US Dollar (GBP/USD) Exchange Rate Rangebound amid Thin Trading Conditions
The Pound US Dollar (GBP/USD) exchange rate is narrowing this morning, as thin trade leads investors to focus on UK headlines.
At the time of writing, GBP/USD is trading at around US$1.2150, displaying little movement from the morning’s opening rates.
Pound (GBP) Bogged Down by Bleak Housing and Retail Expectations
The Pound (GBP) is being pulled lower this morning, as a lack of data shifts investor focus to domestic news.
While UK retailers are reporting an uptick in profits over the seasonal period, most suggest inflation is playing a role. Consumers are generally spending more to buy less as cost inflation continues to affect prices.
However, the UK’s housing market has shown a ‘marked slowdown’ throughout 2022. Barratt, the UK’s largest housebuilder, saw considerably lower orders on 31 December 2022 than it did last year.
Victoria Scholar, Head of Investment at interactive investor, stated:
‘Cost-of-living pressures are prompting many potential homeowners to hold off from buying a property as they wait hopefully for mortgage rates and house prices to cool further later this year into next year.’
With the housing market showing a continual downturn, investors have begun to be more conscious of the recession’s impact on the UK.
US Dollar (USD) Tepid as Investors Await Inflation Data
The US Dollar (USD) is lacking direction this morning, as investors anticipate the latest inflation data. Printing tomorrow, the data is forecast to show a drop in December’s headline inflation rate from 7.1% to 6.5%.
Recently, the Federal Reserve has maintained it’s hawkish stance, and Fed Chair Powell’s speech yesterday held minimal hints. As such, the fall in inflation is of key interest for investors.
Further muting the US Dollar could be a modest downtick in US Treasury bonds. At the time of writing, the bonds are down 0.14 from the morning’s rates.
Elsewhere, thin trading conditions are causing the US Dollar to trade on risk sentiment. So far, a somewhat optimistic market mood is capping the safe-haven ‘Greenback.
Pound US Dollar (GBP/USD) Exchange Rate Forecast:
Looking ahead for the Pound, trading conditions are thin ahead of Friday’s GDP data for November. The UK’s GDP is forecast to display a contraction MoM, which could weaken Sterling. Recession anxieties are likely to be amplified on the back of this release if it prints as forecast.
Elsewhere, domestic headlines may continue to weigh on Sterling tomorrow. Due to the aforementioned trading conditions, investors may focus on any fresh developments in the current wave of industrial action. With unions currently considering joint action, further news of this intention could weigh on Sterling.
Looking ahead for the US Dollar, tomorrow sees the release of December’s inflation data. The expected fall in core inflation, from 6% to 5.7% could add further pressure to USD.
Should this data print as expected, USD may weaken as rate hike expectations are pared back by investors. However, the employment data due to print at the same time may cushion the ‘Greenback’ by reaffirming the tightness of the US labour market.
A shift towards an upbeat market mood could strengthen GBP/USD due to the safe-haven nature of the ‘Greenback’.