Pound US Dollar (GBP/USD) Exchange Rate Plunges amid Hawkish Fed

GBP/USD Drops to Four-Month Low on Elevated Rate Hike Bets

(Updated 9:00, 8/3/23)

The Pound US Dollar (GBP/USD) exchange rate remains close to lows not seen since November of last year. With Federal Reserve Chair Jerome Powell testifying before Congress, he opened the door to a 50bps rate increase at the next meeting. With US inflation remaining sky-high, Powell said the central bank is prepared to increase the pace of interest rate hikes if data warranted.

At time of writing, the GBP/USD exchange rate is around $1.1834, relatively unchanged from the morning’s opening levels. However, it is still a 1.60% fall from yesterday.

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GBP/USD Tumbles on Aggressive Powell Speech

(Updated 16:30, 7/3/23)

The Pound US Dollar (GBP/USD) exchange rate is crashing on elevated interest rate hikes from the Federal Reserve. In a testimony to Congress, Fed Chair Jerome Powell buoyed USD investors as he warned that bigger interest rate hikes could return. Stating that inflation remains too high, Powell warned Congress that more needed to be done. He added:

‘If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.’

At time of writing, the GBP/USD exchange rate is around $1.1860, over a 1.34% fall from the morning’s opening levels.

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Pound US Dollar (GBP/USD) Exchange Rate Fluctuates as BRC Reveals Latest UK Retail Sales

The Pound US Dollar (GBP/USD) exchange rate is trading in a narrow range. The British Retail Consortium (BRC) revealed UK shoppers cut back on spending, highlighting the persistent living cost squeeze.

At time of writing, the GBP/USD exchange rate is around $1.2022, relatively unchanged from this morning’s opening levels.

Pound (GBP) Undermined by Living Cost Squeeze on Consumers

The Pound (GBP) is struggling to find much demand this morning as the BRC released its monthly retail sales figures.

Despite sales rising higher than expected, consumers had to sharply cut back their spending in February amid surging living costs. Against expectations of 4.8%, retail sales YoY in February climbed by 4.9%. However, with inflationary pressures pushing prices up, the figure hid weaker sales volumes. Helen Dickinson, Chief Executive of the BRC, commented that the government needs to step in and help retailers without leaving consumers to pick up the tab. She added:

‘To protect people from ongoing price rises for goods, government must avoid additional regulatory costs on business that compromise retailers’ ability to invest in lowering prices and in other areas that would contribute to the UK’s economic recovery.’

Elsewhere, post-Brexit concerns continue to spook investors. UK business leaders have warned that frayed relations with the EU are costing the UK economy. The trade body Make UK have warned that manufacturers are becoming more cautious about doing business post-Brexit. A survey of more than 100 leading UK companies revealed that half believe EU suppliers have grown more cautious of supplying the UK.

US Dollar (USD) Supported by Hawkish Fed Expectations

Meanwhile, the US Dollar remains resilient as investors keenly await Federal Chair Jerome Powell’s testimony before Congress later today.

With an expected 25bps interest rate hike all but baked in at the upcoming March policy meeting, USD investors will be looking towards future monetary guidance. Any hints on the central bank needing to continue raising interest rates, the ‘Greenback’ could climb.

Elsewhere, lending some modest support to the ‘Greenback’ is a cautious market mood in the wake of a larger-than-expected trade surplus in China. With both imports and exports weaker than forecasts, the rebound from reopening failed to show a significant bounce. With global recession fears remaining elevated, the safe-haven US Dollar could stay in demand.

Pound US Dollar Exchange Rate Forecast: Fed Chair Testimony to Spur the Greenback?

Looking ahead, the Pound US Dollar exchange rate could see further movement when Powell testifies before Congress later today. Powell is expected to reiterate his previous comments that inflation is slowing but risks remain elevated, necessitating the need for further rate hikes.

Meanwhile, the Pound will be left trading on market sentiment and domestic issues until GDP growth figures are released on Friday.

Danny Tingle

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