Pound US Dollar (GBP/USD) Exchange Rate Narrows as Investors Pare Back BoE Hike Bets

Pound US Dollar (GBP/USD) Exchange Rate Wavers amid Pared Back BoE Hike Bets

The Pound US Dollar (GBP/USD) exchange rate is trading without direction this morning, as GBP investors consider the Bank of England’s (BoE) future direction.

At the time of writing, GBP/USD is trading at around US$1.2485, showing little movement from the morning’s opening rates.

Pound (GBP) Listless amid Receding BoE Hike Bets

The Pound (GBP) is trading listlessly this morning, with a lack of data drivers keeping the focus on The Bank of England’s path forward.

Investors are growing less convinced that the BoE will tighten beyond September, following a recent slate of downbeat data.

Yesterday’s GDP release saw a sharp 0.5% contraction in the UK economy, which sparked recession anxieties.

This compounded other private sector data which indicated deepening struggles in the UK economy. With this in mind, investors are hesitant to bet on further rate hikes from the BoE, as additional tightening could push the country into recession.

Martin McTague, National Chair of the Federation of Small Businesses, commented:

‘This fall in GDP will come as little surprise for small businesses, who have endured uncertain trading conditions over a summer marked by poor weather and still-high levels of inflation.

It is disheartening to see a fall in the three main sectors of services, construction, and production, with the fall in services especially eye-catching due to the dominance of the service sector in the UK economy.’

US Dollar (USD) Quiet Ahead of Afternoon Releases

The US Dollar (USD) is seeing quiet trade this morning, as the focus shifts towards the afternoon’s data releases.

Later, August’s producer price index and retail sales data are due for release. PPI is forecast to have increased by 0.4% on a monthly basis, up from 0.3% in July.

This could bring strength to the ‘Greenback’, as PPI often filters through into consumer prices. This could spark additional Federal Reserve interest rate hike bets.

However, this could be offset by a fall in US retail sales. Sales are forecast to have increased by 0.2% in August, compared to July’s 0.7% increase.

This slowdown may indicate that consumer spending in the US is beginning to be undermined by the Fed’s tightening cycle. Furthermore, as a consumption-dependent economy, slowing sales may weigh on the ‘Greenback’.

Ultimately, the growing perception that the Fed won’t hike rates in September may be keeping USD muted this morning.

Pound US Dollar Exchange Rate Forecast:

Looking ahead for the US Dollar (USD), tomorrow brings the publication of the latest Michigan consumer sentiment index.

In September, economists anticipate that consumer optimism will have held at similar levels. This could strengthen the ‘Greenback’ by indicating continued confidence in the US economy at a ground level.

However, inflation expectations may dent USD as expectations continue to shift towards an imminent pause from the Fed.

Meanwhile, the Pound could continue to trade without clear direction through to the end of the week. With data releases in short supply, the focus may remain on the UK’s economic outlook.

John Mulcahey

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