Pound US Dollar (GBP/USD) Exchange Rate Extends Upside as Markets Remain Upbeat
(Updated 16:00, 9/2/23) The Pound US Dollar (GBP/USD) exchange rate continued to climb through the second part of today’s European session. A bullish mood swept markets, lifting the riskier Pound (GBP) against the safe-haven US Dollar (USD).
The risk-on rally in markets comes as investors shake off economic and geopolitical concerns.
Despite recent hawkish comments from some Federal Reserve officials, markets are trimming their expectations for further interest rate rises. This has both weighed on the US Dollar and contributed to the upbeat mood, as fewer Fed rate hikes would be good for the global economy.
In terms of geopolitics, US-China tensions and the Russia-Ukraine war didn’t faze traders today. The US shot down a suspected Chinese surveillance balloon earlier in the week, but fears of an escalation seem to have now dissipated.
The GBP/USD exchange rate trimmed its gains slightly after the US initial jobless claims data. Although new unemployment benefits claims rose more than forecast, they remain at historic lows. A tight labour market could encourage the Fed to continue hiking interest rates.
At the time of writing, GBP/USD is trading at $1.2167, a huge 0.8% rise since the start of the day’s session.
Attention now turns to the UK’s GDP growth rate for the fourth quarter of 2022, due out early tomorrow morning. If the British economy managed to escape a recession at the end of last year, the Pound US Dollar exchange rate could jump.
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Pound US Dollar (GBP/USD) Exchange Rate Rises as Market Sentiment Improves
The Pound US Dollar (GBP/USD) exchange rate rose this morning as an upbeat market mood supported the riskier Pound (GBP) over the safe-haven US Dollar (USD).
At the time of writing, GBP/USD is trading at around $1.2130, up 0.5% from this morning’s opening level.
Pound (GBP) Firms amid Risk-On Trade
The Pound is strengthening against the US Dollar this morning, thanks to an upbeat market mood supporting the more risk-sensitive UK currency.
This week has seen some sharp shifts in risk appetite. But today, after a bearish mood yesterday, markets have once again turned bullish.
The upbeat tone comes as US-China tensions recede after the US shot down a suspected Chinese spy balloon that was travelling in American airspace. President Biden said on Wednesday that the US was ‘not looking for conflict’ with China, and simply answered ‘No’ when asked if the incident had caused major damage to the relationship between Washington and Beijing.
With these geopolitical jitters easing somewhat, the riskier Pound is finding support against the safer US Dollar.
However, Sterling’s gains seem limited. Concerns remain over the health of the UK economy and investors await tomorrow’s important UK GDP data. This hesitancy is keeping a lid on the Pound so far. While GBP/USD has made strong gains today, it remains around 1.75% down since last week, at the time of writing.
US Dollar (USD) Softens as Fed Rate Bets Recede
Another factor cheering markets – and weighing on the US Dollar – is a slight pullback in Federal Reserve interest rate hike bets.
Despite hawkish comments from three Fed officials yesterday, markets remain unsure over how much further the US central bank will go in terms of monetary tightening.
Last night US Treasury yields – often a gauge of Fed rate rise expectations – declined, and they have failed to recover this morning. This in turn is putting pressure on the ‘Greenback’.
It’s also adding to the risk-on market mood, as higher interest rates from the Fed could choke off the global economy.
GBP/USD Exchange Rate Forecast: Can Sterling Sustain Its Upside?
As the day unfolds, any shifts in risk sentiment could affect the Pound US Dollar pair. If markets remain upbeat, the riskier UK currency could continue to strengthen against the ‘Greenback’. If the mood sours, GBP/USD could relinquish the morning’s gains.
This afternoon, the focus for USD investors will be the latest initial jobless claims figure. Last week, the data came in well below market expectations, with a low number of new unemployment benefits claims boosting the US Dollar. If this week’s release adds to evidence that the American labour market remains tight, this could prompt more Federal Reserve interest rate rise bets, thereby boosting USD exchange rates.
As for Sterling, the UK currency may find its gains limited ahead of tomorrow’s British GDP data. The fourth-quarter results will indicate whether or not the UK economy fell into a recession last year. Therefore, they could trigger sharp movement. GBP investors may be hesitant to place aggressive bets ahead of this important release.