Pound US Dollar (GBP/USD) Exchange Rate Trades Erratically as Fed Keeps Rate Decision Open
(Updated 16:30, 29/3/23)
The Pound US Dollar (GBP/USD) exchange rate continues to fluctuate after Federal Reserve Vice Chair Michael Barr keeps the door open to further interest rate hikes. Addressing the collapse of Silicon Valley Bank (SVB) Barr also reassured the market that the Fed would be prepared to intervene to ensure the system remains safe and sound. On the central bank’s monetary policy, Barr also added:
‘We will be looking at incoming data, financial conditions to make a meeting-by-meeting judgement on rates.’
At time of writing, the GBP/USD exchange rate is around $1.2317, relatively unchanged from this morning’s opening levels.
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GBP/USD Exchange Rate Fluctuates as Banking Crisis Fears Recede
The Pound US Dollar exchange rate is rangebound as concerns over the financial sector fade, but recession fears linger.
At time of writing, the GBP/USD exchange rate is around $1.2317, relatively unchanged from this morning’s opening levels.
Pound (GBP) Underpinned by Further Rate Hike Bets
The Pound (GBP) remains quiet this morning as a lack of major data has left it exposed to market sentiment. Despite returning optimism over the financial sector, fears of a deeper recession have poured cold water on the upbeat mood.
Bank of England (BoE) Governor Andrew Bailey testified before the Treasury Committee yesterday, and the central bank has said it will remain vigilant to any further market chaos. Reassuring the markets that the UK banking system remains resilient, Bailey also denied that a fresh crisis was on the horizon. He added:
‘I don’t think we are at all in the place we were in in 2007… but we have to be very vigilant. I don’t think there’s a problem going forward, (but) I do not want to give you, for a moment, the idea that we are not very vigilant, because we are in a period of very heightened, frankly, tension and alertness.’
However, lending some modest support to Sterling are expectations of further interest rate hikes. With inflation remaining stubbornly high, the central bank won’t shy away from raising rates to bring headline CPI down.
US Dollar (USD) Undermined by Improving Market Mood
The US Dollar is struggling for a clear direction this morning amid a lack of economic data. With fears over the banking contagion receding, risk appetite has returned to the markets, sapping demand for the safe-haven ‘Greenback’.
However, China’s Taiwan Affairs Office has issued a warning to Taiwan after President Tsai Ing-wen visited the US. China has threatened retaliation if the Taiwan President was to meet with US House Speaker Kevin McCarthy. Beijing has repeatedly warned officials not to meet with Taiwan, as they view it as support for the island nation’s desire to be viewed as a separate country. Escalating geopolitical tensions could weigh on market sentiment, boosting the US Dollar.
But things could go south for market sentiment, and in turn lift the ‘Greenback’, as recession fears begin creeping back into the fray. Despite the banking turmoil receding somewhat, Mike Riddell, Senior Fixed Income Portfolio Manager at Allianz Global Investors, has warned of the recession risks that are returning:
‘The bigger, medium-term implication, of what’s happened in the last month is that global growth will be far weaker in six months than we thought even just a few weeks ago.’
Pound US Dollar Exchange Rate Forecast: BoE Speech to Rally the Pound?
Looking ahead, the Pound US Dollar exchange rate could see further movement with a speech from the central bank’s most hawkish member. BoE policymaker Catherine Mann is scheduled to speak at the NABE conference, covering ‘inflation and monetary policy’. GBP could climb on hawkish rhetoric.
Meanwhile, the US Dollar could see fluctuations with a flurry of a data releases. Final GDP growth figures, jobless claims, and a speech from Fed boardmember Tom Barkin could all impact USD. A slowdown in economic expansion and a modest uptick in unemployment claims could weigh on the ‘Greenback’.