Pound US Dollar (GBP/USD) Exchange Rate Firms as Fed Chair Powell Remains Cautious
(Updated 09:05, 8/2/2023) The Pound US Dollar (GBP/USD) exchange rate is firming this morning, as markets digest Federal Reserve Chair Jerome Powell’s remarks from last night.
In his speech, Powell provided the bare minimum of resistance to speculation of slowed rate hikes. Because of this, the market shifted in favour of riskier assets, allowing Sterling to gain ground.
Powell reiterated that:
‘The disinflationary process, the process of getting inflation down, has begun.’
However, he further stated that he expects there to be more rate hikes followed by a pause, and left no indication of rate cuts.
Bringing further tailwinds for Sterling is the news that the FTSE100 opened this morning at record breaking levels.
At the time of writing, GBP/USD is trading around US$1.2090, a rise of roughly 0.3% from today’s opening rates.
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Pound US Dollar (GBP/USD) Exchange Rate Weakens as UK Retail Sales Slide
The Pound US Dollar (GBP/USD) exchange rate is weakening this morning, as the UK’s retail sector appears to be in decline.
At the time of writing, GBP/USD is trading around US$1.2004, a decline of roughly 0.2% from the morning’s opening rates.
Pound (GBP) Struggles amid Slowing Retail Sales
The Pound (GBP) is struggling for support this morning, following the release of the British Retail Consortium’s (BRC) unofficial sales data.
The BRC’s data showed that retail sales in January had grown by 3.9%, but remains far below inflation. Furthermore, it reflected a sharp climbdown from December’s figure of 6.5%.
By illustrating UK consumer’s falling ability to spend, it added further fears around the UK’s economic outlook.
Elsewhere, the fallout from last week’s interest rate decision from the Bank of England (BoE) continues. Investors are exploring the possibility of a slowdown in the BoE’s tightening cycle, with a hold or cut expected at the next meeting.
Danny Blanchflower, a former BoE Policymaker, stated that:
‘We are seeing house prices tumbling. You’re going to start to see really bad stuff appearing as these economies slow fast and the central bank and the markets are then going to respond to that.’
As such, a reduction in rate hike expectations is likely keeping Sterling on the backfoot this morning.
US Dollar (USD) Lags amid Upbeat Market Mood
The safe-haven US Dollar is lacking in support this morning, as risk appetite remains high amongst investors.
Furthermore, thin liquidity is keeping investors quiet ahead of this evening’s speech from Federal Reserve Chair Jerome Powell.
Investors are anticipating that Powell may take a hawkish angle with his speech, following forecast-eclipsing economic data. Last week showed that a staggering number of jobs had been created, while wage growth had fallen.
As such, there appears to be room for further tightening from the Fed. With this in mind, the ‘Greenback’s losses due to the market mood may be being limited by interest rate hike bets.
Pound US Dollar (GBP/USD) Exchange Rate Forecast: Fed Chair Powell to Boost USD?
Looking ahead for the US Dollar, Federal Reserve Chair Jerome Powell is due to deliver a speech this evening. He’s currently expected to go for one last hawkish hurrah, as a reaction to recent economic data in the US.
With room for further rate hikes, if Powell takes this hawkish stance the ‘Greenback’ could strengthen. However, if he takes a more cautious standpoint USD rates could weaken.
For the Pound, liquidity is thin over the next few days. Because of this, the focus could shift to domestic headlines. Industrial action remains present in the UK, with workers continuing to stage walkouts.
Further headlines outlining mass industrial action could weigh on GBP, as the strikes continue to have an impact on the UK economy.
Elsewhere, risk appetite could play a role in shaping the pairing. If risk aversion increases, the safe-haven ‘Greenback’ may rally.