Pound US Dollar (GBP/USD) Exchange Rate Wavers amid Fed Rate Hike Bets
The Pound US Dollar (GBP/USD) exchange rate is wavering this morning, as USD firms amid elevated rate hike bets.
At the time of writing, GBP/USD is trading at around US$1.12816, showing little movement from the morning’s opening rates.
US Dollar (USD) Firms on Rate Hike Bet Momentum
The US Dollar (USD) is firming this morning, as it carries its momentum forward from yesterday’s session.
On the back of a shock acceleration GDP growth, the ‘Greenback’ enjoyed support from investors amid the optimistic outlook. The Federal Reserve appears on track to succeed in bringing a ‘soft landing’ for the US economy.
Furthermore, analysts continue to deliberate Fed Chair Jerome Powell’s recent speech, and are considering the possibility of one final hike.
Chris Turner, at ING, stated:
‘Undoubtedly, US activity data has been holding up well, and based purely on the activity data alone one would argue that the Fed had the strongest case for another rate hike, yet Fed Chair Jerome Powell acknowledges that US monetary policy is already in restrictive territory and the focus is on disinflation.’
Elsewhere, USD investors may be eyeing the upcoming employment cost index after Powell spotlighted it. A cooldown is expected, which could diminish these bets and prompt USD to trim its gains this afternoon.
Pound (GBP) Choppy as Light Calendar Engenders Vulnerability
The Pound (GBP) is seeing choppy trade this morning, as a lack of impactful data leaves the currency exposed to risk sentiment.
As an increasingly risk-sensitive currency, the morning’s tepid market mood is seeing Sterling fluctuate. However, owing to broad strength in the US Dollar, GBP is struggling to gain much ground against the ‘Greenback’.
Similarly, pared back interest rate hike bets from the Bank of England (BoE) could be bringing headwinds. While another hike is firmly on the cards, investors are anticipating a more modest 25bps hike from the BoE, as opposed to the recent 50bps hike.
Earlier in the week, Bruce Kasman from JP Morgan commented that:
‘The BoE has more work to do but the inflation surprise bolsters confidence that it returns to a 25 bps pace of tightening in August. The slide in core goods prices is likely to be sustained, but services price inflation remains extraordinarily elevated alongside wage growth running above 7%.’
However, the data could still be used to assert arguments for either level of tightening. The BoE remain under staunch pressure to control inflation, as it continues to bear down on both UK households and businesses.
GBP/USD Exchange Rate Forecast: Core PCE Cooldown to Dent USD?
This afternoon, the latest core PCE price index data is likely to bring fresh impetus to the pairing. As the Fed’s preferred gauge of inflation, the forecast of a cooldown to 4.2% may weigh on USD by prompting reduced rate hike bets.
However, if the index cools less than expected, it may prompt strength as investors eye further rate hikes.
For the Pound, meanwhile, today’s absence of data releases could leave the increasingly risk-sensitive currency vulnerable. A souring market mood may weaken GBP.