Pound US Dollar Exchange Rate Fluctuates amid a Cautious Market Mood
The Pound US Dollar (GBP/USD) exchange rate is rangebound this morning as a stalling US economy could mean a pause in the Federal Reserve tightening cycle.
At time of writing the GBP/USD exchange rate is trading around $1.2422, relatively unchanged from this morning’s opening levels.
US Dollar (USD) Undermined by Looming Interest Rate Pause
The US Dollar is struggling for increased demand amid choppy market action. With a subdued market mood, USD investors were buoyed by persistent hawkish comments from the Federal Reserve. However, fears of a stalling US economy in recent weeks have seen markets pricing in a pause in the rate hike cycle after the May meeting.
The Fed, publishing their Beige Book survey of regional businesses, said of the economic situation:
‘Overall economic activity was little changed in recent weeks. Several districts noted that banks tightened lending standards amid increased uncertainty and concerns about liquidity.
‘Overall price levels rose moderately during this reporting period, though the rate of price increases appeared to be slowing.’
Released two weeks before each policy meeting, the report marked a considerable step down from the previous Beige Book, with a note of caution around the US economy. With risks to the economic outlook growing, concerns of a mild recession have seen the Fed consider a pause.
Bets for one more quarter point interest rate hike could keep the ‘Greenback’ supported, but the growing likelihood of a pause could limit gains.
Pound (GBP) Quiet amid Mounting Economic Concerns
Meanwhile, the Pound is fairly subdued this morning having shed most of its gains from a hotter-than-expected inflation reading. Despite headline CPI remaining in double digits, all but confirming the Bank of England (BoE) to continue their tightening cycle, fears of an economic slowdown could be paring gains.
However, keeping Sterling supported, are elevated bets for at least one more interest rate hike at the next policy meeting. Michael Saunders, former BoE policymaker, predicts that inflation will force the central bank to increase interest rates once more. With surging energy prices being the overwhelming driver behind soaring inflation, Saunders predicts that the UK has finally turned a corner, and inflation will begin to fall. He added:
‘I think they’re probably almost done now…. The big tightening cycle, of interest rates going up meeting after meeting, I think that’s largely over.’
Pound US Dollar Forecast: Souring UK Retail Sales to Dent Sterling?
Looking ahead, the Pound US Dollar exchange rate could see further movement with the release of the latest retail sales in the UK tomorrow. After recording two strong months of growth, retail sales in March as expected to decline by 0.5%. The underlying pace of growth appears to remain subdued as the cost-of-living crisis continues to weigh on consumers.
Meanwhile, initial jobless claims will be released for the US. The ‘Greenback’ could come under pressure if predictions prove true. A slight uptick in unemployment claims, following a surprise surge last month, could point to a cooling labour market.