Pound US Dollar (GBP/USD) Exchange Rate Fluctuates on Fading Debt Ceiling Optimism
(Updated 19/5/23, 08:45)
The Pound US Dollar (GBP/USD) exchange rate is wavering this morning after reports emerged that an agreement with the US debt ceiling could be blocked by Republicans. If spending cuts are not approved, negotiations could continue to drag on. Reuters reported that:
‘The small but powerful Republican faction warned this week that they could try to block any agreement to raise the $31.4 trillion debt ceiling from passing the House of Representatives if the accord does not contain ‘robust’ federal spending cuts.’
At time of writing, the GBP/USD exchange rate is around $1.2406, relatively unchanged from the morning’s opening levels.
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GBP/USD Exchange Rate Plunges on BoE Uncertainty
(Updated 18/5/23, 16:15)
The Pound US Dollar exchange rate is sliding further this afternoon as Bank of England (BoE) Governor Andrew Bailey testified before Parliament over the central bank’s monetary policy. Commenting on how the inflation outlook remains foggy, uncertainty surrounding the BoE’s monetary policy going forward sapped demand for Sterling.
At time of writing, the GBP/USD exchange rate is around $1.2566, a 0.60% plunge from the morning’s opening levels.
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GBP/USD Exchange Rate Sours amid US Default Fears
The Pound US Dollar exchange rate is dipping this morning as US debt ceiling negotiations near a resolution, as BoE uncertainty weighs on the Pound.
At time of writing, the GBP/USD exchange rate is around $1.2566, a 0.33% fall from the morning’s opening levels.
US Dollar (USD) Boosted by Debt Ceiling Negotiation Optimism
The US Dollar (USD) is enjoying some support from optimism surrounding the debt ceiling negotiations.
After the latest round of talks between President Joe Biden and House of Representatives Speaker Kevin McCarthy, Biden expressed confidence that there will be no US default. A rally in regional US banks also improved the mood, as Western Alliance Bancorp reported deposits grew by $2bn. Biden added:
‘To be clear, this negotiation is about the outlines of the budget, not about the whether or not we’re going to (pay our debts). The leaders (of Congress) have all agreed: We will not default. Every leader has said that.’
However, with risk sentiment also on the up, the ‘Greenback’ saw its gains limited. With safe-haven flows drying up, the US Dollar could encounter further pressure.
Pound (GBP) Undermined by Monetary Policy Uncertainty
Meanwhile, the Pound (GBP) is struggling for demand as investors are still uncertain over the Bank of England’s (BoE) forward guidance.
BoE Governor Andrew Bailey spoke yesterday of lower energy costs will inevitably drive inflation down this year, tempering future rate hike bets. However, he also noted upside risks and uncertainty surrounding the inflation outlook. With wages continuing to rise, second-round impacts could keep inflation longer for longer, boosting chances of further rate hikes. Bailey said:
‘(High inflation) reflects second-round effects as the external shocks we have seen interact with the state of the domestic economy. And as headline inflation falls, these second-round effects are unlikely to go away as quickly as they appeared.’
Pound US Dollar Exchange Rate Forecast: BoE Testimony to Weigh on Sterling?
Looking ahead, the Pound US Dollar exchange rate could see further movement with Bailey set to testify before Parliament’s Treasury Select Committee this morning.
Set to answer questions on Quantitative Tightening, Bailey will be talking about how quantitative easing impacted inflation, and if further tightening would bring it down. Any further hints of additional interest rate hikes could lift Sterling.
As for the US Dollar, initial jobless claims are set to rise again, with an expected increase of 254k. Following the highest rise since October 2021, another week of surging unemployment claims could further highlight a cooling labour market. The ‘Greenback’ could slip on pared interest rate hike bets.