Pound US Dollar (GBP/USD) Exchange Rate Jumps following Fed Powell Comments

Pound US Dollar (GBP/USD) Exchange Rate Rallies as Markets Scale Back Fed Bets

(Updated 16:55, 19/05/23) The Pound US Dollar (GBP/USD) exchange rate surged higher this afternoon after comments from Federal Reserve Chair Jerome Powell saw markets reprice their expectations for further rate hikes from the US central bank.

The Fed chief signalled that recent jitters in the US banking sector have led to tightening credit conditions, which may mean interest rates don’t need to climb as high. In response, markets reined in expectations for a rate hike in June.

The current odds for a rate increase next month are 16%, down from 36% yesterday.

This added to GBP/USD’s earlier gains. The increasingly risk-sensitive Pound (GBP) had firmed against the safe-haven US Dollar (USD) amid a risk-on market mood.

At the time of writing, GBP/USD is trading at around $1.2464, up almost 0.5% on the day.

Original article continues below:

Pound US Dollar (GBP/USD) Exchange Rate Attempts Recovery amid USD Weakness

The Pound US Dollar (GBP/USD) exchange rate is licking its wounds today, wavering higher after plunging to a one-month low yesterday amid a broad-based weakness in the American currency.

At the time of writing, the GBP/USD exchange rate was trading at around $1.2427, up 0.2% on the day.

US Dollar (USD) Hit by Profit-Taking

The US Dollar (USD) is on the defensive this morning, having faced a dramatic repricing after it surged to multi-month highs yesterday.

The downside in USD is partially due to profit-taking, as some currency traders opt to cash in on the Dollar’s recent impressive rally.

However, renewed concerns about the US debt ceiling are also weighing on USD. Markets had been hopeful that a compromise would be reached between President Joe Biden and House Speaker Kevin McCarthy. However, some Republicans have indicated that they could move to block a deal.

Meanwhile, a positive tone in markets is putting some pressure on the safe-haven US Dollar, seeing it slip against its riskier rivals.

Pound (GBP) Subdued amid Lack of Data

As for the Pound (GBP), Sterling is struggling to press its advantage against the ‘Greenback’ today as a lack of UK economic data leaves the currency rudderless.

Amid the scarcity of economic reports, GBP traders may have looked to the latest UK consumer confidence index from German market research company Gfk. However, the release – which is low-impact at the best of times – printed as expected.

This morning Sterling is declining against many of its peers due to the thin trading conditions. However, the bullish tone in markets is seeing the riskier Pound eke out meagre gains against the safer US Dollar.

GBP/USD Exchange Rate Forecast: BoE and Fed Speeches to Drive Volatility?

Looking ahead, central bank speakers are the focus today. First up we have Jonathan Haskel, one of the most hawkish rate setters at the Bank of England (BoE).

Recently, other policymakers at the bank have expressed concern about second-round inflation effects leading to persistently high core inflation. If Haskel echoes these concerns, suggesting that more rate hikes may be needed, then Sterling could find support.

Any upside may be short-lived, however. Three Federal Reserve officials are due to speak today, including Fed Chair Jerome Powell. If the US central bankers also strike a hawkish tone, as many of their colleagues have recently, then USD could rally.

Samuel Birnie

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