Pound US Dollar (GBP/USD) Exchange Rate Pares Gains after Hawkish Fed Comments
(Updated 16:11 08/02/23)
The Pound US Dollar (GBP/USD) exchange rate has pared some of its earlier gains over the course of the day. A risk-on market mood continued to support the pairing. Hawkish comments from multiple Federal Reserve policymakers weighed on the exchange rate, however.
New York Federal Reserve President John Williams signalled that the central bank would continue to hike interest rates in the face of a persistently strong labour market.
Following this, Federal Reserve Governor Lisa Cook said:
‘We are determined to bring inflation down to our target. So I think we are not done yet with raising interest rates, and we will need to keep interest rates sufficiently restrictive.’
At time of writing the GBP/USD exchange rate is at around $1.2071, which is up roughly 0.2% from this morning’s opening figures.
Original article continues below:
Pound US Dollar (GBP/USD) Exchange Rate Boosted by Optimistic UK Outlook
The Pound US Dollar (GBP/USD) exchange rate is climbing today. Speculation that the UK may avoid a deep recession may be lending support to the pairing. Additionally, dovish comments from Federal Reserve Chair Jerome Powell may also be bolstering GBP/USD today.
At time of writing the GBP/USD exchange rate is at around $1.2104, which is up roughly 0.4% from this morning’s opening figures.
Pound (GBP) Rises after Upbeat UK Forecasts
The Pound is climbing today (GBP). Sterling may be seeing gains off the back an all-time high in the UK’s FTSE 100 index.
The share index hit a fresh record at the start of today’s trading session. The rally has come amid hope that the UK’s recession may not be as damaging as forecast.
This speculation came after a report from the National Institute for Economic and Social Research (NIESR). The report outlined the likelihood that the UK would manage to sidestep a deep recession in 2023.
Less optimistically however, the report outlined how rising energy bills and soaring food costs will worsen the cost-of-living crisis for UK households. This gloomy assessment may be capping gains for GBP today.
Bets on a slower pace of policy tightening from the Bank of England (BoE) may also be keeping pressure on Sterling today.
US Dollar (USD) Drops as Powell Signals Easing Inflation
The US Dollar (USD) is falling today. A downturn in US Treasury bond yields may be causing USD to slip. A speech from Fed Chair Jerome Powell on Tuesday may also be prompting losses in the US Dollar.
Speaking at the Economic Club at Washington, Powell signalled that inflation was beginning to cool due to the Fed’s actions. These signals are likely pulling USD lower today.
Powell was quick to reassure markets that further rate hikes may be on the horizon, however:
‘If we continue to get, for example, strong labor market reports or higher inflation reports, it may well be the case that we have to do more and raise rates more than is priced in.’
These promises from Powell may be lending support to USD today. The safe-haven ‘Greenback’ may also be seeing its losses limited by a cautious market mood.
GBP/USD Exchange Rate Forecast: Will UK GDP Data Cause Pound Slip?
Looking ahead to the rest of the week for Sterling, the latest GDP data on Friday is likely to be a key driver for GBP. December’s GDP figures are expected to indicate a contraction in the UK’s economy. If the data prints as forecast it could weaken the Pound.
Also on Friday, GDP growth figures for the fourth quarter of 2022 are set to point to a sharp downturn in the UK’s economy. The data could add to the forecasts for a damaging 2023 recession for the UK. The figures may also deepen any losses for Sterling.
Finally for GBP, a forecast widening in the UK’s December trade deficit could weigh on the Pound on Friday.
For the US Dollar, a number of speeches from Fed officials today could bolster USD if they echo Powell’s hawkish stance.
Thursday’s jobless claims could also add to market speculation of further rate hikes from the Fed if they print as expected. Claims for the week ending Feb 04 are expected to print close to last week’s lows. The data could bolster USD amid signs of a tight labour market.
Friday’s consumer sentiment figures may also lend support to the US Dollar. December’s figures are expected to rise to their highest point since April 2022.