The Pound US Dollar (GBP/USD) ticked up this morning, despite a souring market mood sweeping across global markets amid ongoing Middle Eastern conflict.
At the time of writing the GBP/USD exchange rate is trading at $1.2274, up roughly 0.3% from this morning’s opening rate.
US Dollar (USD) Dips amid Fed Speeches despite Risk-Averse Market
The US Dollar (USD) is stumbling this morning following yesterday’s series of Federal Reserve speeches amid ongoing conflict in the Middle East.
Federal Reserve policymakers Philip Jefferson, Michael Barr and Lorie Logan gave speeches throughout Monday’s session. Much of their commentary indicated that the Fed’s recent rate hiking cycle may be coming to an end ahead of the central bank’s rate decision in November.
Investors seem to have undercut the chances of further Fed rate hikes amid the dovish commentary from Federal Reserve officials. The Fed’s Lorie Logan, known for being particularly hawkish among the US bank’s policymakers, stated:
‘If long-term interest rates remain elevated because of higher term premiums, there may be less need to raise the fed funds rate’.
Following the Fed speeches, the likelihood of a rate increase at the Fed’s next meeting fell from 27% to 14%, while the odds of a December rate hike fell from 36% to 24%. Today, markets are pricing in just a 10% chance of a hike next month, leaving the ‘Greenback’ on the defensive.
Pound (GBP) Wavers amid Mixed UK Economic Pessimism
The Pound (GBP) edged marginally higher this morning despite ongoing worries surrounding the health of the UK economy.
Various sources have indicated a slowdown of UK economic growth this morning, as recession anxieties persist. September’s retail sales data from the British Retail Consortium (BRC) came in at 2.8%, down from August’s 4.3%. As high living costs continue to burden British households, consumer spending remains in decline.
Kantar, a UK data provider, has reported that grocery prices are at their lowest in over a year. However, wages are thought to be rising too slowly to stay in line with living costs.
Along with continued weakness in UK economic growth, Pierre-Olivier Gourinchas, the International Monetary Fund’s (IMF) Economic Counsellor, has warned:
‘The general perspective on the UK is we have fairly subdued growth, we have falling momentum, a labour market that is cooling, but inflation remains quite persistent.
‘And that is going to require monetary policy to remain tight for a little while longer, into next year’.
With the UK growth outlook so weak, the Pound remains in a precarious position. However, the prospect of UK interest rates remaining higher for longer may be lending GBP some limited support.
Pound Dollar Exchange Rate Forecast: Fed Bets to Dent USD?
Looking forwards, Federal Reserve policymakers are due to deliver more speeches throughout the week. Indication of more hawkish policy could support USD, whereas a continuation of Monday’s dovish commentary may further dent the US Dollar.
Tomorrow, September’s PPI figures are out in the US. A forecast slowdown in the US producer price index could see USD slip if cooling inflation is reported in American factories.
On Thursday, the UK’s monthly GDP figures are due to be released. Forecast growth of 0.2% may offer some much-needed support to Sterling, quelling fears of an increasingly weak UK economy.
Ongoing conflict in the Middle East could continue to spook markets throughout the week, potentially leading investors back to the safe-haven ‘Greenback’, allowing USD to recoup some of its earlier losses