Pound US Dollar (GBP/USD) Exchange Rate Languishes near Four-Month Low

Pound US Dollar (GBP/USD) Exchange Rate Remains Subdued despite USD Pullback

(Updated 16:20, 8/3/23) The Pound US Dollar (GBP/USD) exchange rate has failed to make much headway today, despite a slight pullback in the US Dollar (USD).

The ‘Greenback’ fell victim to some profit-taking following yesterday’s remarkable rally. Meanwhile, a modest return of risk appetite put some pressure on the safe-haven American currency.

Stronger-than-expected US jobs data failed to lift the Dollar. Both the ADP employment report and JOLTs job openings exceeded forecasts, but USD investors seemed unimpressed.

Nevertheless, the Pound (GBP) struggled to press the advantage. Currently, GBP/USD is trading at $1.1846. While this is up just under 0.2% on the day, Sterling is still two cents lower against the ‘Greenback’ compared to the start of yesterday’s session.

Hawkish expectations from the Federal Reserve continue to underpin USD, while dovish comments from Bank of England (BoE) policymaker Swati Dhingra dented GBP. Dhingra advocated a pause in the bank’s tightening cycle, saying:

‘[Raising rates too high] risks unnecessarily denting output at a time when the economy is weak and deepening the pain for households when budgets are already squeezed through energy and housing costs…

‘In my view, a prudent strategy would hold policy steady amidst growing signs external price pressures are easing’.

With it looking as though the policy gap between the Fed and the BoE is set to widen, any risk-driven gains for Sterling were severely limited.

Original article continues below:

Pound US Dollar (GBP/USD) Exchange Rate Muted as Markets Await US Data

The Pound US Dollar (GBP/USD) exchange rate is moving sideways at its lowest levels since mid-November, with markets still reeling following hawkish remarks from Federal Reserve Chair Jerome Powell yesterday afternoon.

Investors are now looking ahead to the latest US jobs data, due this afternoon. Strong results have the potential to push GBP/USD to fresh multi-month lows.

At the time of writing, the Pound US Dollar exchange rate is trading at $1.1836, up from a low of $1.1809 but still more than two cents lower than yesterday’s high point.

US Dollar (USD) Holds Strong amid Fed Rate Expectations

The US Dollar (USD) is holding on to yesterday’s impressive gains today as investors await American jobs data later this afternoon.

Tuesday’s trade saw the ‘Greenback’ skyrocket after Fed Chair Jerome Powell opened the door to a faster pace of interest rate rises. Many had anticipated a hawkish tone from the Fed chief, but his comments still took markets by surprise.

Powell indicated that the Fed could return to half-point rate hikes, after downshifting to a quarter-point increase last month. The US central bank chief said:

‘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. Restoring price stability will likely require that we maintain a restrictive stance of monetary policy for some time.’

These comments sent USD skyrocketing, and the currency is holding strong today. Currently, markets are pricing in a 72% probability of a 50bps increase from the Fed at its meeting in two weeks’ time.

Meanwhile, the prospect of higher borrowing costs is weighing on the global market mood, further underpinning the safe-haven US Dollar.

Pound (GBP) Subdued amid Lack of Support

Turning to the Pound (GBP), Sterling is struggling to find support today. A lack of British economic data and a cautious market mood are keeping the currency on the defensive.

The prospect of higher US interest rates is also troubling GBP investors. Despite recent positive data, the UK economy is still at risk of recession. Higher borrowing costs and a weaker Pound versus the Dollar could tip the economy over the edge.

Some cautiously optimistic news about UK industrial action may be helping to cushion the Pound from further losses. After months of industrial action, the RMT rail union has called off strikes to consider a new pay offer. Hopes of a resolution to the dispute may be offering GBP investors a smaller glimmer of hope.

GBP/USD Exchange Rate Forecast: Strong US Jobs Data to Boost the Dollar?

Following Powell’s hawkish testimony yesterday, markets are bracing for the latest US jobs data.

First up is the ADP employment change figure. Though less impactful than the non-farm payrolls report, which is due Friday, the ADP data does give an indication of the strength of the US labour market. An expected uptick could boost the US Dollar.

Later in the afternoon, the JOLTs job openings figure is forecast to show that vacancies remain at a historic high.

Both these jobs reports could point to continued tightness in the US labour market, suggesting resilience in the country’s economy and raising the possibility of further wage increases. As a result, markets may once again increase bets on a 50bps Fed rate rise, thereby boosting USD.

Furthermore, Powell is due to appear in front of US lawmakers again on his second day of testimony to Congress. USD bulls will be hoping for more hawkish comments.

As for the Pound, UK economic data is thin on the ground so Sterling may remain subdued. Barring shockingly weak results from the US jobs data, it looks like GBP/USD will languish at multi-month lows through today’s session.

Samuel Birnie

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