Pound US Dollar (GBP/USD) Exchange Rate Narrows amid Mixed FOMC Minutes
(Article updated 09:10, 25/5/23) The Pound US Dollar (GBP/USD) exchange rate is narrowing this morning, following the release of mixed Federal Open Market Committee (FOMC) minutes.
These minutes showed an increased tentativeness over additional interest rate hikes. The minutes stated:
‘Several participants noted that if the economy evolved along the lines of their current outlooks, then further policy firming after this meeting may not be necessary.’
With this in mind, USD investors appear to be adjusting their bets on additional tightening, as a pause in June appears to be increasingly likely.
At the time of writing, GBP/USD is trading at around US$1.2359, showing little change from the morning’s opening rates.
Original article continues below:
Pound US Dollar (GBP/USD) Exchange Rate Falls as US Debt Ceiling Fears Grow
(Article updated 16:31, 24/5/23) The Pound US Dollar (GBP/USD) exchange rate has fallen further this afternoon, as talks over the US debt ceiling continue.
Should the US Government default on its debts, which could occur if the negotiations fail, it may have catastrophic implications for the US economy.
Because of these anxieties, the brinkmanship as both sides negotiate for a beneficial deal is prompting a souring market mood. This is bringing safe-haven flows to the ‘Greenback’, and is preventing GBP from gaining ground.
At the time of writing, GBP/USD is trading at around US$1.2376, a fall of just over 0.3% from the morning’s opening rates.
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Pound US Dollar Exchange Rate Dips Despite Shock UK Core CPI Jump
The Pound US Dollar exchange rate is weakening this morning, despite the UK’s core consumer price index surging to a 31-year high.
At the time of writing, GBP/USD is trading at around US$1.2386, a fall of over 0.2% from the morning’s opening rates.
Pound (GBP) Cushioned by Shock Core CPI Rise
The Pound (GBP) is trading flatly, despite a hotter-than-forecast surge in core inflation. This may be because of a sharp cooldown in headline inflation, which fell to 8.7%.
However, as both measures printed above any forecasts rate hike bets are on the rise, likely cushioning GBP. Despite the fall, inflation remains substantially above the Bank of England’s (BoE) target rate of 2%.
As such, expectations are increasing that the bank will pursue an additional rate hike in June. James Smith, Developed Markets Economist at ING, explained:
‘Core inflation picked up from 6.2% to 6.8%. This undoubtedly makes life harder for policymakers and no doubt raises the chance of yet another 25bp rate hike in June.’
Furthermore, food prices are continuing to climb at an astonishing clip, surging at a 45-year rate of 19% over the previous 12 months. Because of this, markets are anticipating further tightening beyond June’s meeting, which may be providing further cushioning for Sterling.
Elsewhere, a cautious market mood is likely undermining the Pound, due to it’s increasingly risk-sensitive nature.
US Dollar (USD) Quiet ahead of FOMC Minutes
The US Dollar (USD) is trading quietly this morning, as investors await the publication of the latest Federal Open Market Committee (FOMC) minutes.
Investors are likely to hope for indications of further interest rate hikes, which would likely prompt support for USD. However, the CME Group’s FedWatch Tool currently leans towards a pause, indicating a 64% chance of no change in the June meeting.
If these minutes confirm this suspicion, the ‘Greenback’ could fall sharply as investors pare back their bets on further hikes. Similarly, this event may even bring about the discussion of a rate cut, which would further dampen USD.
GBP/USD Exchange Rate Forecast: UK Retail Recovery to Boost GBP?
Looking ahead for the Pound, the core catalyst of movement is likely to come from Friday’s retail sales data. Economists forecast a recovery to 0.3% over April’s trade, which could bring cheer to GBP investors.
Beforehand, the continuing analysis of the UK’s latest consumer price index data could provide impetus. As core inflation showed a shock increase, this could strengthen Sterling over tomorrow’s lack of data.
For the US Dollar, beyond tonight’s FOMC minutes, investors are likely to await the latest initial jobless claims. For the week ending May 20th, jobless claims are forecast to tick up to 245,000.
If this prints accurately, it shows that claims are remaining in their usual narrow range. This could spark elevated interest rate hike bets, and bring strength to USD.