Pound US Dollar (GBP/USD) Exchange Rate Buoyed amid Cheery Trade
The Pound US Dollar (GBP/USD) exchange rate surged higher today, recouping overnight losses, as a risk-on market mood and Bank of England (BoE) interest rate rise bets supported the currency pair.
At the time of writing, GBP/USD was trading at around $1.2386, up 0.45% on the day.
US Dollar (USD) Slides amid Risk-Positive Sentiment
The US Dollar (USD) faced heavy selling pressure at the start of this week’s session as an upbeat market mood saw investors shun the safe-haven ‘Greenback’.
The risk-on impulse that characterised most of last week’s trade has continued today. The return of stability to the US and European banking sectors continues to cheer investors, while the prospect of a softer approach from the Federal Reserve also contributes to the optimistic tone.
At the end of last week, the US core PCE price index – the Federal Reserve’s preferred measure of inflation – unexpectedly cooled from 4.7% to 4.6% year on year. This has somewhat dampened expectations for more Fed rate hikes, which has both boosted risk sentiment and dented the US Dollar.
Pound (GBP) Firms amid Last Week’s Lingering Tailwinds
Meanwhile, the riskier Pound (GBP) is enjoying the current market optimism.
Adding to GBP’s gains are expectations that the Bank of England will raise interest rates again at its next meeting.
Last week, BoE Governor Andrew Bailey reiterated the fact the UK interest rates may need to rise higher to deal with persistently elevated price pressures. Bailey argued that the recent worries about financial instability were for the Financial Policy Committee, and that the Monetary Policy Committee was focused on fighting inflation, which remains in double digits.
In addition, Friday’s fourth-quarter GDP growth rate surprised markets. The UK economy grew 0.1% at the end of 2022, rather than stalling. With the British economy seemingly stronger than many had anticipated, the BoE may be more inclined to hike rates again.
GBP/USD Exchange Rate Forecast: ISM PMI to Dent the Dollar?
Looking ahead, the US ISM manufacturing PMI is in focus this afternoon. Forecasters expect the latest data release to show a deepening contraction in US factory activity, with the score edging lower from 47.7 to 47.5. If the PMI prints as forecast, the US Dollar could face further selling pressure.
Meanwhile, notable UK data releases remain in short supply this week. Therefore, Sterling may continue to be driven by market risk appetite.
Tomorrow brings more potentially impactful US data, including the JOLTs job openings, economic optimism, and factory orders. If the data is downbeat, GBP/USD could enjoy further gains.