Pound US Dollar (GBP/USD) Exchange Rate Slides as BoE Governor Bailey Suggests Interest Rate Peak

Pound US Dollar (GBP/USD) Exchange Rate Drops amid Dovish Speech from BoE Governor Bailey

(Article updated 15:15, 01/03/2023) The Pound US Dollar (GBP/USD) exchange rate is falling this afternoon, as markets digest a dovish speech from Bank of England (BoE) Governor Andrew Bailey.

In his speech delivered earlier today, Bailey suggested that interest rates had likely peaked. He further stated that any incoming data would be vital in shaping the BoE’s future rate adjustments, and pointed to the need of care when hiking rates.

Because of this, GBP investors may have begun quite the sell-off, leaving Sterling to sink against most major peers.

However, the US Dollar (USD) isn’t fairing much better – the latest ISM manufacturing PMI pointed to a below-forecast contraction. Forecast to print at 48, the index instead came in at 47.7, reflecting continued weakness in the US’ manufacturing sector.

Because of this, USD investors likely began to pare back interest rate hike bets from the Federal Reserve.

At the time of writing, GBP/USD is trading around US$1.1978, a decline of 0.5% from the morning’s opening rates.

Original article continues below:

Pound US Dollar (GBP/USD) Exchange Rate Strengthens as Chinese PMI Surprise Sparks Bullish Trade

The Pound US Dollar (GBP/USD) exchange rate is rising this morning, as risk-on trade prompted by upbeat Chinese PMIs weighs on USD.

At the time of writing, GBP/USD is trading around US1.2075, a rise of roughly 0.3% from the morning’s opening rates.

US Dollar (USD) Undermined by Chinese PMI Inspired Bullish Trade

The US Dollar (USD) is struggling for demand this morning, amid an upbeat market mood. As a safe-haven currency, the ‘Greenback’ is proving an uninviting prospect after the latest Chinese PMIs.

Releasing this morning, indexes for China’s private sector showed a surprise return to growth in both manufacturing and service sectors.

Dr Wang Zhe, Senior Economist at Caixin Insight Group, stated:

‘In a nutshell for February, the economy saw a faster pace of recovery following a peak in the recent wave of Covid infections as supply and demand expanded, overseas demand surged, employment started to rebound, and logistics recovered at a faster pace.’

Furthermore, USD investors are likely awaiting this afternoon’s ISM manufacturing PMI. While the index is forecast to show that US manufacturing is remaining in contractionary territory, a surprise upside could boost USD.

Pound (GBP) Limited by Falling House Prices

The Pound (GBP) is struggling for support this morning, bar gains made against a weak US Dollar. This morning, UK house prices were shown to have declined by 1.1% on a yearly basis in February.

By showing the weakest rate since November 2012, Sterling’s continued gains from the ‘Windsor Framework’ may be capped.

Victoria Scholar, Head of Investment at interactive investor, commented on the release. She stated:

‘The housing market is struggling under the weight of lacklustre economic growth, a softening consumer, falling real wages, and rising mortgage rates as the Bank of England continues to raise rates.’

However, the aforementioned optimism around the recent Northern Ireland deal are likely cushioning the Pound.

As sign of healing post-Brexit trade relations with the EU, GBP investors may remain supportive of Sterling over the session.

Pound US Dollar (GBP/USD) Exchange Rate Forecast: US Non-Manufacturing PMI to dent USD?

Looking ahead for the US Dollar, the core catalyst of movement is likely to come from Friday’s non-manufacturing PMI. February’s index is forecast to show a slowdown in the services sector, falling to 54.5 from 55.2.

If this prints as forecast, the ‘Greenback’ could weaken somewhat, as it shows the impact of the Federal Reserve’s tightening. As such, USD investors may pare back their expectations for further rate hikes.

For the Pound, Bank of England Chief Economist Huw Pill is due to speak on Thursday. If he strikes a hawkish note, Sterling could rally on renewed rate hike hopes.

Elsewhere, market sentiment may shape the pairing. If markets continue their bullish trade on the back of China’s private sector recovery, GBP could strengthen.

John Mulcahey

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