Pound US Dollar Exchange Rate Buoyed by Positive Risk Flows
The Pound US Dollar (GBP/USD) exchange rate is trading with modest gains so far this morning. As a prevailing risk-on mood limits USD demand.
At the time of writing the GBP/USD exchange rate is trading at around $1.2861. Up roughly 0.2% from this morning’s opening levels.
US Dollar (USD) Undermined by Upbeat Sentiment
The US Dollar (USD) opens on the defensive this morning as an improving market mood saps demand for the safe-haven ‘Greenback’.
Risk appetite has recovered in the wake of comments from Federal Reserve policymaker Patrick Harker. In a speech on Tuesday, Harker suggested US interest rates have peaked.
Harker said:
‘Absent any alarming new data between now and mid-September, I believe we may be at the point where we can be patient and hold rates steady and let the monetary policy actions we have taken do their work.’
An end to the Fed’s hiking cycle could help to relieve pressure on the global economy, so this was welcomed by markets.
However, the US Dollar’s losses are very modest in scope as the improvement in market sentiment has been tempered somewhat after China’s economy slipped into deflation.
China’s consumer price index fell by 0.3% in July. Raising fresh concern over China’s post-Covid recovery.
Pound (GBP) Sidelined by Gloomy UK Economic Outlook
The Pound (GBP) is struggling to attract support this morning, following headlines warning the UK faces five years of lost economic growth.
The National Institute of Economic and Social Research (NIESR) forecasts UK GDP will not return to its pre-pandemic levels until the second half of 2024 as the country faces a number of headwinds.
Professor Stephen Millard, deputy director for macroeconomic modelling and forecasting at NIESR, comments:
‘The triple supply shocks of Brexit, Covid and the Russian invasion of Ukraine, together with the monetary tightening that has been necessary to bring inflation down, have badly affected the UK economy.’
However the thinktanks forecast the UK will avoid a recession this year, it suggests there is a ‘60% risk’ of one before the end of 2024.
Pound US Dollar Exchange Rate Forecast: US Inflation Could Sink GBP/USD
Looking ahead, to the second half of the week, the Pound US Dollar exchange rate could come under pressure, following the publication of the latest US consumer price index.
Economists forecast July’s CPI figures will report headline inflation will have accelerated to 3.3%. This would be the first uptick in US inflation in over a year and could revive expectations for at least one more interest rate hike from the Fed this year.
Meanwhile, GBP investors will be focused on the UK’s upcoming GDP figures. Friday’s data is expected to report UK economic growth stalled in the second quarter. Likely leading the Pound to send the week on a sour note.