Pound US Dollar (GBP/USD) Exchange Rate Rangebound after Hawkish Minutes
(Updated 6/7/23, 8:45)
The Pound US Dollar (GBP/USD) exchange rate is trading erratically this morning after the Federal Open Market Committee (FOMC) minutes revealed that almost all rate-setters favoured a return to hiking interest rates after the latest pause. The minutes added:
‘Almost all participants noted that in their economic projections that they judged that additional increases in the target federal funds rate during 2023 would be appropriate.’
At time of writing, the GBP/USD exchange rate is around $1.2713, relatively unchanged from this morning’s opening levels.
Original article continues below…
GBP/USD Exchange Rate Fluctuates amid Short-Lived BoE Rate Hike Support
(Updated 5/7/23, 16:30)
The Pound US Dollar exchange rate is continuing to trade in a narrow range as economists at Société Générale warn of the uncertainty surrounding the UK economy could see the Pound slide despite a hawkish Bank of England (BoE). They added:
‘The UK has a less attractive growth/inflation trade-off than other major economies, something which has been exacerbated by Brexit. The upshot of that will be weaker growth and higher inflation over 2023-2024 than in the Eurozone. ‘
At time of writing, the GBP/USD exchange rate is around $1.2717, relatively unchanged from this morning’s opening levels.
Original article continues below…
GBP/USD Exchange Rate Wavers amid Fed Uncertainty
The Pound US Dollar exchange rate is trading erratically as investors await the latest FOMC meeting minutes.
At time of writing, the GBP/USD exchange rate is around $1.2713, relatively unchanged from this morning’s opening levels.
US Dollar (USD) Undermined by Soft Economic Data
The US Dollar (USD) remains fairly quiet after the Fourth of July holiday as investors await the latest clues on Federal Reserve’s policy outlook. The Federal Open Market Committee (FOMC) minutes from the June meeting will be the focus of the day.
With the markets pricing in another 25bps rate hike in the July meeting, the concern lies with how much headroom the Fed will have in the wake of soft data. After last week’s surprise inflation reading decelerating further than expected, the Fed may choose to pause sooner than anticipated. Furthermore, core inflation also slowed to 4.6% from 4.7%, and ISM manufacturing PMI remained in contraction territory for the eighth straight month. A run of downbeat data could severely pare rate hike bets.
However, with renewed geopolitical tensions between the US and China could be providing the ‘Greenback’ some modest support amid a gloomy market mood. Beijing announced controls of valuable exports used in the production of electric vehicles and semiconductors. As a retaliation, US President Joe Biden could restrict Chinese companies access to cloud-computing access. China’s Global Times commented that the move could be a warning to the US and its allies:
‘China could be more cautious about supplying its rare-earth resources to support those that have sided with the US-led decoupling push from China.’
Lending further support could be rising fears of a global slowdown amid rampant interest rate surges. As risk appetite continues to wane, the safe-haven ‘Greenback’ could offset monetary policy slowdown concerns.
Pound (GBP) Pressured by Recession Fears
Meanwhile, the Pound (GBP) is struggling for demand this morning after it was confirmed that the service sector slowed for the third consecutive month. Despite remaining in expansion territory above 50, services PMI decreased from 55.2 to 53.7 in May as the final reading met consensus.
S&P Global confirmed that the UK’s crucial services sector continues to lose momentum as soaring borrowing costs and sky-high inflation weighs on consumer demand. With slower increases in new work and business activity, the latest data highlighted the weakest expansion in three months. Tim Moore, Economics Director at S&P, commented on the data:
‘The service sector showed renewed signs of fragility in June as rising interest rates and concerns about the UK economic outlook took their toll on customer demand. Business activity increased at the slowest pace for three months, while the rate of new order growth eased further from April’s recent peak.’
However, job creation edged up to a nine-month high as input inflation fell to its lowest since 2021. With labour market conditions remaining strong, Sterling could be finding support with expectations of further tightening from the BoE.
Pound US Dollar Exchange Rate Forecast: Hawkish FOMC Minutes to Spur the Greenback?
Looking ahead, the Pound US Dollar exchange rate could see further movement with the release of the latest FOMC minutes. A hawkish tone could open the door for further tightening from the Fed, but a string of recent poor data releases could see a pause sooner rather than later.
Meanwhile, the Pound only has the latest construction PMI data to look forward to this week. Expectations of a modest slowdown could be offset by the positive news that the sector remaining in expansion territory. Elsewhere, fears of a looming recession and an uncertain economic outlook could keep a firm lid on Sterling.