Pound US Dollar Exchange Rate Weakens amid a Dovish BoE
The Pound US Dollar (GBP/USD) exchange rate is floundering as a strong US economy was compounded by a cautious Bank of England (BoE).
At time of writing the GBP/USD exchange rate is trading around $1.2467, a 0.30% fall from this morning’s opening levels.
US Dollar (USD) Buoyed by Further Tightening Expectations
The US Dollar (USD) is continuing its relentless climb this morning after ISM service sector PMIs surprised to the upside. Interest rate hike bets from the Federal Reserve were revived, sending the ‘Greenback’ soaring on a strong US economy.
Business activity in the US continued to expand at a faster-than-expected pace in August. The service sector jumped to 54.5 against an expected 52.5. Underlying data showed that employment grew at a strong pace, and price pressures also strengthened. Anthony Nieves, Chair of the ISM Services Business Survey Committee said of the data:
‘Sentiment among Business Survey Committee respondents varies by industry. However, the majority of panelists are positive about business and economic conditions.’
USD investors are now confident that the Fed could raise the interest rates once more this year. The ‘Greenback’ propelled to a fresh three-month high against the stuttering Pound (GBP). The lead could be extended if initial jobless claims print as expected this afternoon.
Pound (GBP) Undermined by Recession Fears
Meanwhile, the Pound continues its slump as a myriad of headwinds keeps Sterling under pressure.
Cautious comments from Bank of England (BoE) Governor Andrew Bailey yesterday added to the bearish pressure. Talking at the Treasury Select Committee in parliamnet, he said a ‘marked’ fall in inflation is more than likely this year. Furthermore, Bailey also poured cold water on interest rate hike bets as monetary policy is probably ‘near the top of the cycle’.
BoE policymaker Swati Dhingra also noted in the annual report to the Treasury Committee that the current policy was ‘sufficiently restrictive’, adding:
‘Policy is already sufficiently restrictive, and the lagged effects of further tightening pose serious risks of output volatility in order to make a small dent on inflation.
‘While each additional increase in Bank Rate intensifies the effect on currently exposed subsets of the economy – for example those rolling off fixed-rate mortgages – it takes time for the breadth of the effects to increase.’
Mounting recession fears and the BoE nearing its interest rate peak is sapping demand for Sterling and could remain under pressure for a while.
Pound US Dollar Forecast: Loosening Labour Market to Dent the US Dollar?
Looking ahead, the Pound US Dollar exchange rate could see further movement with the latest initial jobless claims. Despite another modest climb, they are set to remain near historical lows. However, a surprise jump could weigh on the ‘Greenback’.
Meanwhile, the Pound will be left to trade on market sentiment amid a lack of data. Recession risks and a dovish BoE is unlikely to provide much support for the Pound and could sink lower.