Pound US Dollar (GBP/USD) Exchange Rate Rises from Eight-Week Low amid Cautious Optimism

Pound US Dollar (GBP/USD) Exchange Rate Crawls Higher as Market Mood Improves

(Updated 09:30, 26/05/23) The Pound US Dollar (GBP/USD) exchange rate is staging a modest recovery today, after hitting a near eight-week low yesterday, as cautious optimism around the US debt ceiling deadlock cheers markets.

Overnight, reports emerged that President Joe Biden and House Speaker Kevin McCarthy were nearing a deal to lift the debt ceiling and avoid a debt default. Although no deal has been reached, Biden described the ongoing talks as ‘productive’ and said they were ‘making progress’.

This has provided limited relief to markets, with the slight improvement in market mood lifting the riskier Pound (GBP) against the safe-haven US Dollar (USD).

Furthermore, this morning UK retail sales beat expectations, rising by 0.5% in April rather than the forecast 0.3%. This is adding to Sterling’s upside.

At the time of writing, GBP/USD is trading at around $1.2352, up 0.3% on the day.

Original article continues below:

Pound US Dollar (GBP/USD) Exchange Rate Choppy as Risk Aversion Subdues the Pairing

(Updated 16:15, 25/05/23) The Pound US Dollar (GBP/USD) exchange rate fluctuated today, ultimately languishing at an eight-week low, amid ongoing anxiety about the US debt ceiling crisis.

Markets are nervous about the potential for a ‘catastrophic’ debt default as talks to end the crisis have hit a brick wall.

The political deadlock saw credit rating agencies DBRS Morningstar and Fitch put the US under review, adding to the jittery market mood. This bearish tone supported the safe-haven US Dollar (USD) and weighed on the increasingly risk-sensitive Pound (GBP).

Sterling attempted a recovery after hitting a near eight-week low this morning. Fresh bets on another Bank of England (BoE) interest rate rise seemed to be behind GBP’s initial upside.

However, the Pound couldn’t sustain these gains and plunged to a fresh low against the ‘Greenback’ this afternoon.

At the time of writing, GBP/USD is trading at around $1.2339, down 0.2% on the day and close to its lowest level since early April.

Original article continues below:

Pound US Dollar (GBP/USD) Exchange Rate Struggles amid Risk-Off Mood

The Pound US Dollar (GBP/USD) exchange rate is trading at its lowest levels since early April as worries about the US debt ceiling crisis spark widespread risk aversion.

At the time of writing, GBP/USD is at around $1.2367, having bounced off an earlier low of $1.2332.

US Dollar (USD) Strong amid Souring Market Sentiment

The US Dollar (USD) is consolidating its recent rally today as a grim market mood boosts demand for the safe-haven currency.

The primary factor behind today’s bearish tone is the ongoing US debt ceiling crisis. Talks have stalled, with just one week today go before the deadline. If Democrats and Republicans agree a deal to raise the debt ceiling limit, it will still take days to pass the legislation through Congress, so the clock is ticking.

Failing to raise the limit in time could lead to a ‘catastrophic’ default on US debt, according to Janet Yellen, US Secretary of the Treasury, triggering ‘substantial financial market stress’.

With the deadline drawing near, and no resolution in sight, investors are understandably anxious today.

The US crisis adds to broader market fears of global economic instability. Recent data from China – the world’s second-largest economy – has indicated slowing growth. Meanwhile, today’s latest GDP report from Germany showed that the Eurozone’s largest economy slipped into a recession last winter.

This gloomy outlook is driving traders towards more secure investments today, such as the safe-haven US Dollar.

Dovish meeting minutes from the Federal Reserve last night may be putting a slight dampener on USD gains.

Pound (GBP) Subdued despite BoE Bets

Amid this downbeat market mood, the increasingly risk-sensitive Pound (GBP) is struggling.

Sterling may be resisting steeper losses, however, as markets continue to bet on more Bank of England (BoE) interest rate hike bets following yesterday’s hot inflation rate reading.

UK government bond yields – which often indicate BoE bets – have risen sharply this week and are continuing to climb today. The yield on the 10-year Gilt touched a fresh seven-month high this morning, nearing the peaks seen in late September amid the fallout of the government’s ill-fated ‘mini-budget’.

However, this isn’t enough to counteract the pressure GBP/USD is under due to the risk-off market mood. Sterling is wavering at a near eight-week low against the ‘Greenback’.

GBP/USD Exchange Rate Forecast: Risk Aversion to Persist?

Looking ahead, Sterling could enjoy a mild respite later this morning as forecasters expect positive results from the Confederation of British Industry’s (CBI) latest retail sales data.

The CBI’s distributive trades survey is set to improve for the third consecutive month, with economists predicting the score will rise from 5 to 10 – its highest since December. This upbeat indicator of the UK retail sector could lend the Pound modest support.

However, if the market mood remains downbeat, GBP/USD could continue to face pressure.

Later this afternoon, the second reading of US GDP is due out. The American economy slowed significantly in the first three months of 2023, according to the preliminary estimate. Any revisions to the GDP growth rate could spark USD volatility.

Samuel Birnie

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