Pound US Dollar Exchange Rate Stable in Risk-Positive Trade
The Pound US Dollar (GBP/USD) exchange rate is holding its ground so far this morning, amid a cautiously optimistic market mood.
At the time of writing the GBP/USD exchange rate is trading at around $1.3091. Virtually unchanged from this morning’s opening levels.
US Dollar (USD) Dented by Positive Risk Sentiment
The US Dollar (USD) faces fresh selling pressure this morning as a prevailing risk-on mood saps the appeal of the risk-sensitive currency.
The upbeat mood appears linked to hopes the US will serve a recession this year.
Elsewhere, softening US Treasury yields are also weighing on the US Dollar this morning. The drop in yields comes amid diminishing Federal Reserve interest rate expectations.
Fed rate hike bets have weakened over the past couple of weeks in light of softer-than-expected US payroll and inflation releases.
While the Fed is expected to raise rates again in July, there is a growing consensus this could mark the end of its hiking cycle. Some economists are confident the Fed to begin cutting rates in early 2024.
Seth Carpenter, an analyst at investment bank Morgan Stanley, comments:
‘We have pencilled in March 2024 [for the first rate cut], when we think the trend down in inflation will give the Fed enough comfort that we are bound for the target.’
Pound (GBP) Muted amid Political Jitters
The Pound (GBP) is trading sideways this morning amid fresh UK political jitters. This comes as Rishi Sunak’s authority looks to be tested by three by-elections later in the week.
There is a risk the Conservatives could lose all three seats following Thursday’s vote.
This could raise fresh questions over Sunak’s leadership and may spark fresh infighting within the Tory party.
Elsewhere the Pound continues to be underpinned by Bank of England (BoE) rate speculation. Another 50bps rate hike from the bank in August now appears almost entirely priced in by GBP investors.
Pound US Dollar Exchange Rate Forecast: Upbeat US Retail Sales to Boost USD?
Still to come today is the publication of the latest US retail sales figures. June’s figures are expected to report sales growth accelerated from 0.3% to 0.5%.
The uptick in US retail sales could reflect positively on the Pound US Dollar exchange rate. Signs of resilience in US consumer spending may bolster Fed rate hike bets and revive USD demand.
On the other hand, a positive reading could also ease global growth fears. With the resulting cheer potentially underpinning the appeal of the safe-haven ‘Greenback’.
Looking a little further ahead, the release of the UK’s consumer price index looks to dominate movement in the Pound tomorrow.
Another stronger-than-expected inflation reading could inject considerable volatility into Sterling. While it would further strengthen BoE rate hike bets, it might also reignite UK recession fears.