Pound US Dollar (GBP/USD) Exchange Rate Falls Below $1.27 Mark amid Upbeat US Data
Article updated 15:17, 2/8/23:
The Pound US Dollar (GBP/USD) exchange rate fell to a one-month low this afternoon, following the latest ADP employment figures.
Over July, the number of jobs created increased by 324,000 – above forecasts of 189,000, indicating strength in the US labour market.
With this, perceptions that the US economy would be able to hit a ‘soft’ landing grew.
Furthermore, the sour market mood continued to weigh on the increasingly risk-sensitive Pound, and likely brought safe-haven flows to the ‘Greenback’.
At the time of writing, GBP/USD is trading at around US$1.2691, falling by just over 0.8% from today’s opening rates.
Original article continues below:
Pound US Dollar Exchange Rate Flat Following Shock US Credit Downgrade
The Pound US Dollar exchange rate is seeing muted trade this morning, following a surprise downgrade in the US’ credit rating.
At the time of writing, GBP/USD is trading at around US$1.2779, showing little movement from the morning’s opening rates.
US Dollar (USD) Capped by Surprise Fitch Downgrade
The US Dollar (USD) is seeing limited gains this morning, following news that Fitch had downgraded the US Government’s credit rating.
The global rating agency announced that the rating would be decreased from AAA to AA+. The firm cited expectations of fiscal deterioration over the next three years, along side elevated – and expanding – government debt.
Fitch’s statement read:
‘In Fitch’s view, there has been a steady deterioration in standards of governance over the last 20 years, including on fiscal and debt matters, notwithstanding the June bipartisan agreement to suspend the debt limit until January 2025…
‘The repeated debt limit political standoffs and last-minute resolutions have eroded confidence in fiscal management.’
Furthermore, Fitch anticipates that the US economy will slip into a mild recession next year.
The announcement took investors by surprise, and thoroughly soured the market mood. However, analysts appear less-than-convinced of the downgrade. Some believe it is more likely to be dismissed, as it doesn’t reflect recent fiscal information.
US Treasury Secretary Janet Yellen disagreed emphatically, stating:
‘Treasury securities remain the world’s preeminent safe and liquid asset, and… the American economy is fundamentally strong.’
Pound (GBP) Underpinned by BoE Anticipation
Ahead of tomorrow’s interest rate decision, the Pound (GBP) is being underpinned by elevated rate hike bets.
The Bank of England (BoE) are widely expected to hike rates by another 25bps, marking the 14th consecutive hike. According to a survey performed by Bloomberg, 41 of 56 economists interviewed anticipate a quarter-point hike.
However, the UK’s economic health is in question, with recent signs of a sharply slowing economy creating a tense situation. Furthermore, previous speculation that the BoE would pursue a 50bps hike has been dismissed, following falling inflation.
Elsewhere, the muted market mood is serving to keep Sterling down, due to its increasingly risk-sensitive nature.
GBP/USD Exchange Rate Forecast: Could Hawkish Forward Guidance Boost GBP?
Tomorrow, hawkish forward guidance from the BoE could propel Sterling against its peers. There is a perception of a growing divergence between the central banks, which could bring support to GBP if the BoE hike for longer than others.
Looking ahead for the US Dollar, the core catalyst of movement is likely to be tomorrow’s ISM services index. Over July, the vital sector is forecast by economists to have slowed slightly to 53, down from 53.9.
If this prints accurately, it could ding the ‘Greenback’, as signs of slowing economic activity may lead to pared back rate hike bets. However, as it is expected to remain in expansion territory, any losses may be minor in scale.