Pound US Dollar (GBP/USD) Exchange Rate Touches Ten-Month High as Fed Hints At an End to Hikes

Pound US Dollar (GBP/USD) Exchange Rate Hits Ten-Month High, Retreats amid Profit-Taking

(Updated 09:10, 04/05/23) The Pound US Dollar (GBP/USD) exchange rate rose to a ten-month high during overnight trade after the Federal Reserve signalled an end to its policy tightening cycle. However, the pairing has retreated this morning as it suffers some profit-taking.

Last night, the Fed’s interest rate decision unfolded as expected. Although the bank raised interest rates by 25bps to a 16-year high, it also signalled that this hike may be its last.

In the statement accompanying the decision, the US central bank dropped its guidance saying that ‘some additional policy firming may be appropriate’.

The statement also suggested that the bank would take a wait-and-see approach, preferring to pause to gauge the delayed impact of its aggressive rate hiking cycle. The statement reads:

‘In determining the extent to which additional policy firming may be appropriate to return inflation to 2 percent over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments.’

Fed Chair Jerome Powell described the change of language as ‘meaningful’ during the following press conference, adding that the recent banking sector turmoil had added to tighter conditions.

Kristina Hooper, Chief Global Market Strategist at Invesco, commented:

‘This looks like a dovish hike. The preponderance of evidence suggests the Fed will not continue to hike unless something in the data forces the Fed’s hand.’

The US Dollar (USD) weakened in the aftermath, with GBP/USD climbing to a ten-month high of $1.2594.

However, the Pound (GBP) has since slipped back, as traders cashed in on the pairing’s strength.

At the time of writing, GBP/USD is trading at $1.2565. Could an upbeat UK services PMI help the Pound find its footing again this morning?

Original article continues below:

Pound US Dollar (GBP/USD) Exchange Rate Extends Upside as Markets Brace for Fed Decision

(Updated 16:55, 03/05/23) The Pound US Dollar (GBP/USD) exchange rate continued to climb today, although the upside was rather bumpy, as traders continued to shun the ‘Greenback’ ahead of an expected policy pause from the Federal Reserve.

A mostly upbeat mood in global markets also supported the GBP/USD exchange rate, with investors favouring the riskier Pound (GBP) over the safe-haven US Dollar (USD).

The upcoming Fed decision has the potential to spark significant movement in the Pound Dollar pair. If the US central bank signals a policy pause, USD could slump. However, if policymakers are more hawkish than expected then the ‘Greenback’ could rocket higher.

Original article continues below:

Pound US Dollar (GBP/USD) Exchange Rate Climbs amid Cheery Trade

The Pound US Dollar (GBP/USD) exchange rate gained ground this morning amid a more upbeat market mood ahead of the Federal Reserve’s interest rate decision.

At the time of writing, GBP/USD is trading at around $1.2517, up 0.4% on the day.

US Dollar (USD) Softens Ahead of Fed Decision

The US Dollar (USD) is weakening this morning amid cheery trade ahead of the Fed’s rate decision.

European markets have opened in the green, and amid the upbeat mood currency traders are avoiding the safe-haven ’Greenback’ and opting for riskier assets.

Investors are also shying away from USD due to the looming Fed meeting. Although markets expect the US central bank to raise interest rates by another 25bps, there is speculation that this hike may be the last one in the Fed’s current tightening cycle.

With the Fed potentially set to announce a policy pause, USD exchange rates are lacking support today.

Pound (GBP) Firms as Risk Appetite Improves

Meanwhile, the Pound (GBP) is enjoying renewed support after suffering losses yesterday.

GBP’s upside comes as the increasingly risk-sensitive currency attracts bids amid the upbeat market mood.

The UK currency may also be buoyed by news that the Financial Conduct Authority (FCA) will introduce new measures to entice companies to float on the London stock exchange, rather than rival markets such as Paris or New York.

Announcing the plans, the FCA said:

‘The proposed changes aim to provide a simpler and more accessible UK listing regime for companies, improving the attractiveness of listing in the UK and providing a wider range of investment opportunities for investors.’

Hopes that the changes could reinvigorate the London stock exchange may be providing the Pound with some upward momentum today.

GBP/USD Exchange Rate Forecast: Fed Decision to Drive the Dollar Lower?

Looking ahead, we could see some significant movement in the Pound US Dollar exchange rate through the second part of the day.

Of course, the Federal Reserve decision in the evening is the key event. If the US central bank does signal that tonight’s expected rate rise may be its last, the ‘Greenback’ could slide. Conversely, if the Fed strikes a more hawkish tone then USD exchange rates could soar.

Before then, we have some potentially impactful US economic data. The ISM services PMI for April is expected to show a modest improvement after the previous month’s unexpectedly large slowdown in activity. If the data misses forecasts again, it could reinforce expectations of a Fed policy pause and thereby dent the Dollar.

As for Sterling, the ongoing lack of UK data means GBP/USD may be almost entirely determined by US Dollar movement.

Samuel Birnie

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