Pound US Dollar Exchange Rate Climbs on Reduced Fed rate Hike Expectations
The Pound US Dollar (GBP/USD) exchange rate continues to strengthen as US economic data disappointed. Initial jobless claims rose further than expected, as the final GDP growth rate edged lower. A further pullback in Federal Reserve rate hike bets is dragging the ‘Greenback’ lower.
At time of writing the GBP/USD exchange rate is trading around $1.2370, over a half percent jump from this morning’s opening levels.
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GBP/USD Exchange Rate Climbs on an Improving Economic Outlook
The Pound US Dollar exchange rate regained traction amid an improving market mood, as business optimism returns to the UK.
At time of writing the GBP/USD exchange rate is trading around $1.236, a 0.38% jump from this morning’s opening levels.
Pound (GBP) Supported by Increased Rate Hike Bets
The Pound is finding modest strength this morning amid growing economic optimism and expectations of further tightening from the Bank of England (BoE).
The latest Confederation of British Industry (CBI) business survey found that the majority of private businesses are upbeat over the UK’s economic prospects. Most firms expect growth in the private sector over the next three months, the first positive expectations of growth since April 2022.
However, despite the renewed optimism, the UK economy is barely escaping contraction, as Alpesh Paleja, CBI Lead Economist, warns:
‘It’s encouraging that the private sector is expected to return to growth in the months ahead, chiming with a range of other data indicating some resilience in economic activity. But let’s be clear – at best, this illustrates an economy skirting stagnation-like conditions rather than delivering the strong, sustainable growth we need.
‘While the chancellor has set out an ambitious plan to deliver growth in his spring budget, there’s broad recognition that the UK still faces considerable economic headwinds.’
Lending some further support, however, are hawkish comments from BoE policymaker Catherine Mann. Speaking at the NABE meeting, Mann conceded that despite falling headline inflation, underlying price pressures will make it difficult for the central bank to set monetary policy for the year ahead. With price pressures continuing to build, the BoE may be forces to continue their interest rate hikes, which could see Sterling climb.
US Dollar (USD) Undermined by Improving Global Market Sentiment
Meanwhile, the US Dollar is struggling for demand amid the return of risk appetite. The ‘Greenback’ remains under pressure as global banking fears recede, and expectations of the Federal Reserve pausing their tightening cycle.
However, USD investors appear to have moved to the sidelines ahead of key data releases today and tomorrow. With weekly jobless claims expected to remain low, and the final Q4 GDP figure set to remain unrevised at 2.7%, the US Dollar could climb on the economy’s strength.
The Fed’s preferred gauge of inflation will be the primary focus this week, as the PCE price index is expected to climb 0.4% MoM. Elevated inflation could hold the Fed off from pausing rates as it continues to battle inflation.
Pound US Dollar Forecast: Stagnant GDP Growth to Weigh on Sterling?
Looking ahead, the Pound US Dollar exchange rate could see movement with the final reading of economic activity in the UK for the final quarter of 2022. Despite avoiding a second quarter of contraction, an expected stagnation will hardly inspire GBP investors.
Meanwhile, the Q4 final GDP growth data for the ‘Greenback’ could provide a modest boost in the meantime. An expected confirmation of 2.7% QoQ growth could spur the US Dollar.