Pound US Dollar (GBP/USD) Exchange Rate Slides to Nine-Day Low amid Souring Market Mood

Pound US Dollar (GBP/USD) Exchange Rate Drops as Risk Aversion Sweeps Markets

(Updated 16:30, 12/05/23) The Pound US Dollar (GBP/USD) exchange rate declined this afternoon, falling to a nine-day low, as a risk-off impulse gripped markets.

The pairing had traded with modest gains earlier in the day as a cheery tone boosted the riskier Pound (GBP) against the safe-haven US Dollar (USD). However, risk appetite waned over the course of the session, pushing GBP/USD lower.

Gloomy US data in the afternoon just seemed to add to the downbeat mood, thereby boosting the ‘Greenback’. US consumer sentiment fell more than forecast this month, raising concerns about the health of the world’s largest economy.

Sterling found no support from the UK’s mixed GDP results this morning. Optimism that the UK would avoid a recession, thanks to modest growth in the first quarter of this year, was offset by a surprise economic contraction in March.

At the time of writing, GBP/USD is trading at $1.2469, down two cents from a one-year high hit on Wednesday.

Original article continues below:

Pound US Dollar (GBP/USD) Exchange Rate Firms amid Risk-On Market Mood

The Pound US Dollar (GBP/USD) exchange rate is ticking slightly higher today, despite mixed UK GDP data, as a risk-on mood provides the pairing with modest support.

At the time of writing, GBP/USD is trading at around $1.2525, having wavered marginally higher since the start of today’s session. The pairing still remains considerably lower than it was at the opening of yesterday’s trade.

Pound (GBP) Inches Up despite Mixed GDP Reports

The Pound (GBP) edged higher this morning, despite mixed data about the British economy.

The UK’s GDP growth rate for the first quarter of 2023 showed that the economy expanded by 0.1% from January to March, as expected. This reinforced expectations that the country will escape a recession.

However, GDP in March unexpectedly contracted. Forecasters expected the UK economy to have stalled, but instead it shrank by 0.3%.

Nevertheless, Sterling is managing to crawl higher as an upbeat market mood supports the increasingly risk-sensitive currency. However, GBP/USD remains sharply lower than it was yesterday, having slumped in the wake of the Bank of England (BoE) interest rate decision.

US Dollar (USD) Stumbles amid Cheery Trade

Meanwhile, the US Dollar (USD) is softening as the renewed appetite for risk sees traders shun the safe-haven ‘Greenback’.

USD exchange rates may also be under pressure following comments from Federal Reserve policymaker Michelle Bowman.

The rate setter said that policy is now restrictive, suggesting there may be rate cuts in the future. She also said that more rate hikes are ‘likely appropriate’ if inflation remains high and the labour market stays tight.

This sense of uncertainty and caution from Bowman – a known hawk – seems to have disappointed USD bulls this morning.

GBP/USD Exchange Rate Forecast: BoE Comments to Impact the Pound?

Looking ahead, a speech from Bank of England Chief Economist Huw Pill could impact the Pound later this afternoon. Pill is considered a fairly hawkish policymaker. If he hints at the need for further interest rate rises, Sterling could climb higher.

However, if Pill echoes Governor Bailey’s comments yesterday, arguing that inflation is likely to fall sharply, then GBP could decline.

As for the US Dollar, the latest University of Michigan consumer sentiment score could drive movement. Economists expect household morale in the US to have weakened this month, which may dent USD exchange rates.

Samuel Birnie

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