Pound US Dollar (GBP/USD) Hits 14-Month High amid Elevated BoE Rate Hike Bets
(Article updated 16:41, 16/6/23) The Pound US Dollar (GBP/USD) climbed to a 14-month high this afternoon, as bets on further interest rate hikes propelled Sterling.
While GBP/USD has receded from these heights, the Pound remains elevated as investors continue to price in further rate hikes.
While the US Dollar has seen support from a better-than-forecast showing in the Michigan Consumer Sentiment index, it has been unable to gain ground against GBP.
Joanne Hsu, Surveys of Consumers Director at the University of Michigan, commented:
‘The outlook over the economy surged 28% over the short run and 14% over the long run. Sentiment is now 28% above the historic low from a year ago and may be resuming its upward trajectory since then.’
At the time of writing, GBP/USD is trading at around US$1.2811, rising by just over 0.2% from the morning’s opening rates.
Pound US Dollar Exchange Rate Narrows amid Central Bank Schism
The Pound US Dollar exchange rate is trading quietly this morning, despite a growing divergence between the central banks.
At the time of writing, GBP/USD is trading at around US$1.2794, showing little movement from the morning’s opening rates.
Pound (GBP) Buoyed by Hawkish BoE Bets
The Pound (GBP) is being underpinned this morning by persistently aggressive interest rate hike bets, alongside a modestly upbeat market mood.
Markets anticipate hawkish action from the Bank of England (BoE) at their next meeting, wherein the bank is widely expected to deliver a 25bps hike.
Some economists have even begun to price in at least two additional rate hikes, bringing the terminal rate to 5.25%.
Sanjay Raja, Senior Economist at Deutsche Bank, explained:
‘The labour market will also likely remain hot in the very near-term as the ONS incorporates more of the forthcoming pay deals into the hard data. We do, however, see downside risks emerging from late Q3 to early Q4, allowing the MPC to push the pause button at the November meeting.’
However, a lack of data releases may be preventing Sterling from firmly capitalising on these bets. With the data docket thin on the ground, investors appear to be seeking other opportunities.
US Dollar (USD) Undermined by Dovish Fed Bets
The US Dollar (USD) is tending its wounds this morning, following a sharp sell-off yesterday. Amid bets on dovish Federal Reserve action, and mixed data, USD is unable to gain much territory.
It seems likely that the recent pause from the Fed is keeping sentiment softened towards USD, as it creates a divide between central banks.
Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE at ING, commented:
‘Inflation forecasts and expected tightening cycles are being revised higher across the board and in some cases more aggressively than in the US. This includes recent surprise hikes from Australia and Canada, a very hawkish ECB meeting yesterday, and very aggressive expectations for Bank of England rate hikes.’
Furthermore, a shift in risk appetite may be weighing on the safe-haven ‘Greenback’. A bullish market mood seems to be in the air, leading investors to seek riskier assets.
GBP/USD Exchange Rate Forecast: Consumer Sentiment Uptick to Lift USD?
Looking ahead for the US Dollar, this afternoon brings the release of the latest consumer sentiment reading for June.
A minor uptick, from 59.2 to 60, is forecast by economists which could bring a little cheer to the ‘Greenback’. This is likely to be a positive sign for the US economy, due to its reliance on consumption.
Through to early next week, data releases are relatively slight save for a duo of Fed official speeches on Tuesday. With the Fed being seen as dovish, hawkish rhetoric could lift USD.
For the Pound, the data calendar is more or less blank at the start of next week. Because of this, market dynamics could continue to drive Sterling.
Furthermore, bets on further rate hikes may serve to boost GBP, as investors continue to price in additional tightening.