Pound US Dollar (GBP/USD) Exchange Rate Flat as Investors Price in July Fed Hike
(Article updated 16:50, 6/7/23) The Pound US Dollar (GBP/USD) exchange rate has relinquished its afternoon gains, falling back to flat levels.
This comes following a set of US data which set the stage for the Federal Reserve to resume hiking in July.
Firstly, the latest ADP employment data printed significantly above forecasts, indicating a tight labour market.
The latest ISM services print compounded this, showing that the vital sector grew more than anticipated in June.
Between these results, bets escalated that the Fed would pursue a 25bps hike in July. However, these gains may have been limited by a larger-than-forecast fall in the number of JOLTs job openings, which printed at 9.8 million.
At the time of writing, GBP/USD is trading at around US$1.2704, showing little movement from the morning’s opening rates.
Pound US Dollar Exchange Rate Flat amid Upbeat Market Mood
The Pound US Dollar exchange rate is sticking within narrow bounds this morning, as the market mood improves.
At the time of writing, GBP/USD is trading at around US$1.2710, showing little movement from the morning’s opening rates.
US Dollar (USD) Muted as Market Mood Improves
The US Dollar (USD) is seeing muted trade this morning, as the market mood improves and weighs on the safe-haven currency.
Last night’s FOMC meeting minutes did provide an initial boost to the ‘Greenback’. While they explained why the Federal Reserve opted for a pause, they indicated majority support for future tightening.
The minutes stated:
‘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. Most participants observed that uncertainty about the outlook for the economy and inflation remained elevated and that additional information would be valuable.’
However, the cheery trade this morning is prompting a readjustment in USD rates. With investors seeking more adventurous opportunities, the safe-haven ‘Greenback’ appears unable to capitalise on rate hike bets.
Elsewhere, markets are likely remaining quiet as the focus shifts towards the afternoon’s data releases.
Pound (GBP) Reinforced by Rate Hike Bets
The Pound (GBP) is remaining steadfast this morning, as investors continue to place bets on further rate hikes from the Bank of England.
During an interview this morning, BoE Governor Andrew Bailey stated that inflation remained ‘way too high’. While fears remain around the prospect of overtightening, GBP investors are moving to price in another 50bps hike in August.
Furthermore, recent reports have indicated that interest rates could rise even further to 6%. This would likely push the UK economy into a ‘hard landing’, which is potentially capping GBP’s gains thus far.
Elsewhere, the upbeat market mood may be providing further cushioning for the Pound, owing to its increasingly risk-sensitive nature.
GBP/USD Exchange Rate Forecast: US Labour Data in Focus
This afternoon, the US Dollar could see further impetus following the release of the latest ISM services PMI.
Economists are forecasting that the service sector expanded over June, with the reading expected to print at 51. If accurate, this could boost the ‘Greenback’ by indicating strength in the private sector.
However, this could be offset by a fall in the JOLTs job openings for May. Forecasts expect the figure to fall to 9.935 million, which could indicate a loosening labour market.
This is then followed on Friday by the highly important non farm payrolls data. Here, jobs created are forecast to have fallen sharply in June, from 339,000 to 225,000. This could dent USD rates.
Meanwhile, the Pound continues to want for impactful data. Over the rest of the week, Sterling is likely to be left vulnerable to shifts in market dynamics.