Pound US Dollar (GBP/USD) Exchange Rate Narrows amid Wavering Market Mood

Pound US Dollar (GBP/USD) Narrows amid Wavering Market Mood

(Article updated 16:40, 17/5/23) The Pound US Dollar (GBP/USD) exchange rate is trading in narrow bounds this afternoon, as risk appetite shifts across the markets.

With debt ceiling talks still lingering in investors minds, the prospect of fully bullish trade is unlikely. However, some riskier assets such as GBP are enjoying support.

Furthermore, Bank of England (BoE) Governor Andrew Bailey may have prompted additional support with his speech earlier today. While he reiterated a data driven approach, he also indicated that the UK labour market hasn’t loosened as far as expected. Bailey stated:

‘[T]he easing of labour market tightness is happening at a slower pace than we expected in February, and the labour market remains very tight. The number of vacancies remains significantly higher, relative to the number of unemployed, than before the pandemic, and employment figures have been strong.’

At the time of writing, GBP/USD is trading at around US$1.2478, showing little movement from today’s morning rates.

Original article continues below: 

Pound US Dollar Exchange Rate Slips amid Rate Hike Bet Shifts

The Pound US Dollar exchange rate is falling this morning, as investors adjust their bets on further tightening from the Bank of England (BoE).

Currently, GBP/USD is trading at around US$1.2435, a fall of just under 0.4% from the morning’s opening rates.

Pound (GBP) Dips amid Rate Hike Bet Adjustments

The Pound (GBP) is weakening this morning, as investors readjust their bets on further tightening from the Bank of England.

Following yesterday’s data, economists and investors are now considering a pause in June. Wage growth slowdown was considered one of the key pieces of information that the BoE would need to pause their cycle. While wages are continuing to grow, they remain far off-pace with inflation.

As such, the focus is shifting to future data releases. The inflation print due on May 24th is the key release.

Beforehand, later this morning, BoE Governor Andrew Bailey is due to deliver a speech. If he continues his previous cautious stance, GBP could weaken further. However, if he takes steps to assuage markets, Sterling could rally on elevated interest rate hike bets.

US Dollar (USD) Strengthens as Debt Ceiling Talks Progress

The US Dollar (USD) is strengthening this morning, following news that talks over the debt ceiling are progressing well.

While US President Joseph Biden is now en route to Japan, he intends to remain in contact with congressional leaders.

The White House stated:

‘[Biden is] optimistic that there is a path to a responsible, bipartisan budget agreement if both sides negotiate in good faith and recognize that neither side will get everything it wants.’

However, the progress is less tangible than appears. Because of this, the market mood is remaining decisively wary.

As such, the US Dollar is likely enjoying safe-haven flows this morning, as investors remain on edge. Hopefully, the talks will bear fruit, but for now they remain small steps towards the goal.

Speaker Kevin McCarthy said that a deal by the end of the week was possible, but that the two sides remained distant.

GBP/USD Exchange Rate Forecast: US Jobless Claims to Buoy USD?

Looking ahead for the US Dollar, tomorrow sees the release of the latest initial jobless claims. For the week ending May 13th, the number of claims is forecast to tick down slightly.

If this prints accurately, it may boost USD by indicating strength in the labour market. However, with previous readings exceeding forecasts, this could follow that trend. If so, the ‘Greenback’ may weaken.

Furthermore, the Philadelphia Fed Manufacturing Index is due to print. An improvement in May is forecast, but to remain in contractionary territory. While the improvement to -19.8 may cheer USD investors, it may do little for USD.

For the Pound, a lack of data colours the calendar through to the end of the week. As such, Sterling may be left vulnerable to external factors. If risk-averse trade continues, GBP may weaken due to its increasingly risk-sensitive nature.

John Mulcahey

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