Pound US Dollar (GBP/USD) Exchange Rate Gains Ground despite GBP Volatility
(Updated 15:35, 27/06/23) The Pound US Dollar (GBP/USD) exchange rate fluctuated higher today as weakness in the US Dollar (USD) allowed Sterling to gain ground.
The safe-haven ‘Greenback’ found itself struggling for support as an improving market mood saw investors favour riskier assets.
Chinese Premier Li Qiang said that the country expects GDP to have accelerated in the second quarter, countering recent rumours that growth in the world’s second-largest economy was set to slow. This cheered global investors, thereby dampening demand for the safer US Dollar.
The ‘Greenback’ also came under pressure as the People’s Bank of China (PBoC) took measures to strengthen the Yuan (CNY), with state banks selling their USD reserves.
Meanwhile, the increasingly risk-sensitive Pound (GBP) enjoyed modest support.
Concerns about the UK’s economic outlook capped gains, however, and sparked some volatility. With inflation stubbornly high and the Bank of England (BoE) set to continue raising interest rates, storm clouds are gathering on the horizon for the British economy.
At the time of writing, GBP/USD is trading at around $1.2750, up 0.3% on the day.
Original article continues below:
Pound US Dollar (GBP/USD) Exchange Rate Remains Choppy amid Rate Rise Fears
The Pound US Dollar (GBP/USD) exchange rate dropped at the start of today’s European session, shedding gains made overnight, as the Pound (GBP) remains volatile amid the UK’s developing mortgage crisis.
At the time of writing, GBP/USD is trading at $1.2732, having moved between $1.2702 and $1.2758 during today’s session.
Pound (GBP) Continues to Waver amid BoE Aftermath
The Pound has remained turbulent today as GBP investors remain skittish in the wake of the Bank of England (BoE) decision last week.
After core inflation unexpectedly spiked to a new 31-year high, the BoE opted for a more aggressive rate hike of 50bps. This raised fears that higher borrowing costs could squeeze the UK economy into a recession, sparking volatility in Sterling.
The decision also sent shockwaves through the British mortgage market, with analysts warning of a ‘timebomb’ as homeowners needing a new deal will face significantly higher repayments.
This is still impacting GBP today, particularly amid a lack of new data.
Mortgage rates have continued to edge higher today, while economists polled by Bloomberg believe the UK will enter a recession by the end of 2023.
BOE set to tip UK into recession by year end, economists say https://t.co/41cmyWnYdH pic.twitter.com/V60Z5p6rmx
— Zoe Schneeweiss (@ZSchneeweiss) June 27, 2023
Bloomberg economists Ana Andrade and Dan Hanson commented:
‘The risk is the data continue to prove unresponsive to the BoE’s actions and interest rates rise further than our baseline.
‘As borrowing costs move above 5%, we think the risk of a financial stability shock increases exponentially.’
While the prospect of more BoE rate hikes usually tends to support the Pound, the associated risks have injected significant volatility into Sterling.
US Dollar (USD) Choppy amid Mixed Market Mood
Meanwhile, the US Dollar (USD) is also struggling to find a clear direction today as mixed factors play on the ‘Greenback’.
Firstly, a shifting market mood is triggering choppy trade for the safe-haven currency. While risk appetite has somewhat recovered following the fast-abandoned Wanger mutiny in Russia over the weekend, concerns about political stability in Russia remain.
Furthermore, US Treasury bond yields remain broadly flat today, having fluctuated sideways this week.
These mixed signals are leaving the ‘Greenback’ to move without a clear trajectory, adding to the uncertain movement in the Pound US Dollar exchange rate.
GBP/USD Exchange Rate Forecast: US Data to Provide the Pound with Relief?
Looking ahead, this afternoon brings the latest US durable goods orders. Economists expect orders to have contracted by 1% in May, which weigh on the ‘Greenback’ and allow GBP/USD to gain some ground.
However, there is a chance that poor American data could rattle markets, which in turn would potentially provide the US Dollar with safe-haven support.
Later on, an expected improvement in consumer confidence could aid USD exchange rates.
As for Sterling, worries about the UK’s economic outlook and the prospect of more interest rate rises could continue to drive volatility in the Pound.