Pound US Dollar (GBP/USD) Exchange Rate Rallies as Markets Lean Towards Fed Pause
(Updated 1/6/23, 17:00)
The Pound US Dollar (GBP/USD) exchange rate is strengthening as a dovish Federal Reserve pared rate hike bets. Compounded by an upbeat market mood over the passing of the US debt ceiling bill, markets are now pricing in a pause at the next policy meeting, denting the US Dollar.
Disappointing US factory output failed to inspire much confidence in the US economy after ISM manufacturing PMIs fell further than expected. Economic activity continues to decline at an alarming pace as the index dropped to 46.9 from 47.1 in April.
At time of writing, the GBP/USD exchange rate is around $1.2534, a 0.71% surge from this morning’s opening levels.
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GBP/USD Exchange Rate Fluctuates as US Set to Avoid Debt Default
The Pound US Dollar exchange rate is rangebound as the House of Representatives passed the bill to allow the debt ceiling to rise. Market sentiment is buoyed as the US avoids defaulting on their debt.
At time of writing, the GBP/USD exchange rate is around $1.2430, relatively unchanged from this morning’s opening levels.
US Dollar (USD) Undermined by Risk-Positive Mood
The US Dollar (USD) is finding modest strength against its peers this morning despite an uptick in market sentiment. Optimism swept through the markets as the House of Representatives passed the debt ceiling bill to suspend the limit through January 1. Now all that stands before approval is the Senate.
Further capping any gains for the ‘Greenback’ were dovish comments from prominent Federal Reserve policymakers. Fed Governor Philip Jefferson was in favour of pausing the rates at the next policy meeting. He commented it would offer time to analyse more data before making any further decisions. Philadelphia Fed President Patrick Harker was also in favour of a pause.
However, providing a modest lift to the US Dollar was the surprise number of job openings in April. The US Bureau of Labor Statistics reported that 10.1m job openings were recorded last month, against expectations of 9.74m. A strong rebound from the previous month’s near two-year low highlighted a persistently tight labour market, potentially opening the door to further interest rate hikes from the Fed.
Pound (GBP) Underpinned by Elevated Rate Hike Bets
The Pound (GBP) is trading listlessly this morning amid a lack of major economic data. However, with the markets pricing in further interest rate hikes beyond the June meeting, Sterling remains supported.
With inflation remaining far above the target rate of 2%, the Bank of England (BoE) is expected to raise the interest rate to 5.5% by the autumn. GBP investors remain buoyed by the prospect of further tightening after a hotter-than-expected headline CPI reading last week.
However, struggling factory activity could be capping any further gains. Final manufacturing PMI revealed that factory output fell again at the fastest rate since January. New orders, output, and employment all declined in the month of May as the PMI was dragged to a four-month low of 47.1.
Pound US Dollar Exchange Rate Forecast: Stuttering US Manufacturing Sector to Dent the Dollar?
Looking ahead, the Pound US Dollar exchange rate could see further movement with the release of the latest ISM manufacturing PMI data. Factory activity is set to remain in contraction territory, revealing the manufacturing sector shrank for the seventh straight month. The ‘Greenback’ could slip on the stuttering manufacturing sector.
Meanwhile, the Pound will be left susceptible to market sentiment for the rest of the week amid a lack of economic data. The prospect of further tightening from the BoE could keep Sterling supported heading into the weekend.