Pound US Dollar (GBP/USD) Exchange Rate Stumbles amid Risk-Off Mood

Pound US Dollar (GBP/USD) Exchange Rate Muted as Market Mood Sours

The Pound US Dollar (GBP/USD) exchange rate is subdued today as a lack of economic data leaves the pairing vulnerable to a risk-off market mood.

At the time of writing, the GBP/USD exchange rate is trading at around $1.2133, down 0.2% on the day.

Pound (GBP) Softens amid Risk Aversion

The Pound (GBP) is on the back foot today as a lack of UK economic data leaves the increasingly risk-sensitive currency struggling to attract support.

The ongoing war between Israel and Hamas continues to rattle investors, amid fears that a protracted conflict or an escalation could add to the headwinds buffeting the global economy.

Kristalina Georgieva, head of the International Monetary Fund (IMF), commented on the Israel-Hamas conflict today. Speaking at the Future Investment Initiative conference in Saudi Arabia, Georgieva said:

‘What we see is more jitters in what has already been an anxious world. And on a horizon that had plenty of clouds, one more – and it can get deeper.’

In addition to the gloomy market mood, worries about the British economy are undermining the Pound.

Yesterday’s weak PMI results have fuelled fears that the UK is skirting a recession. This, in turn, is dampening expectations for more interest rate hikes from the Bank of England (BoE).

US Dollar (USD) Limited Ahead of High-Impact Events

Meanwhile, the safe-haven US Dollar (USD) is attracting investors today amid the bearish tone.

Along with concerns about the Israel-Hamas conflict and potential escalation in the Middle East, markets are worried about recent company third-quarter results showing declining profits and below-forecast revenue.

Skittish investors are therefore opting for the safer US Dollar rather than riskier currencies.

However, USD’s upside potential seems limited ahead of some potentially high-impact events on the horizon.

A speech from Federal Reserve Chair Jerome Powell later tonight and the third-quarter US GDP results tomorrow could both drive significant volatility. USD investors seem hesitant to place any aggressive bets today as they await these developments.

GBP/USD Exchange Rate Forecast: Fed Chair Powell Speech in Focus

Looking ahead, Powell’s speech tonight could drive notable movement in the US Dollar.

Markets are unsure whether the Fed will raise interest rates again this year. Recently, many policymakers at the US central bank have suggested that higher Treasury yields may lead to tighter financial conditions, thereby negating the need for further Fed hikes.

However, the US economy remains resilient and the American labour market is still running hot, so upside risks to inflation remain.

Amid this uncertainty, USD investors may be particularly sensitive to Powell’s comments tonight. Any indication that the Fed remains open to raising interest rates could boost USD.

Tomorrow then brings the preliminary estimate for US GDP in the third quarter. If American economic growth accelerated, as expected, then Fed rate hike bets could see the Dollar jump.

In the meantime, risk appetite may drive the GBP/USD exchange rate. A gloomy mood could keep Sterling on the defensive.

Samuel Birnie

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