Pound US Dollar (GBP/USD) Regains Ground but Remains Subdued
(Updated 16:10, 08/11/23) The Pound US Dollar (GBP/USD) exchange rate managed to regain lost ground this afternoon as an improving market mood and an uneventful speech from Federal Reserve Chair Jerome Powell put some pressure on the US Dollar (USD).
The GBP/USD exchange rate initially weakened this morning as a souring market mood supported the safe-haven ‘Greenback’ and weighed on the increasingly risk-sensitive Pound (GBP).
However, the market mood improved in the afternoon, allowing Sterling to recapture the morning’s losses.
USD was also seemingly undermined by an uneventful speech from Fed chief Jerome Powell. Investors had been cautious in the run-up to the speech, amid fears of a more hawkish tone. But the head of the US central bank steered clear of monetary policy. Markets breathed a sigh of relief, and this subsequently seemed to weigh on the ‘Greenback’.
At the time of writing, GBP/USD is trading at $1.2293, having rebounded to reclaim all its earlier losses.
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Pound US Dollar (GBP/USD) Exchange Rate Pressured amid Risk-Off Trade
The Pound US Dollar (GBP/USD) exchange rate has stumbled this morning as a risk-averse market mood puts pressure on the currency pairing.
At the time of writing, the GBP/USD exchange rate is trading at around $1.2249, down around 0.4% on the day.
US Dollar (USD) Firms as Mood Sours
The US Dollar (USD) is ticking higher this morning as the recent risk-off mood in markets continues, thereby boosting demand for the safe-haven ‘Greenback’.
The optimism that struck at the end of last week has faded, with investors now taking stock of the global situation.
Although many central banks have likely finished raising interest rates, borrowing costs are expected to remain sky-high for a long time. Meanwhile, many of the world’s largest economies – including China and the Eurozone – are showing signs of stress.
Furthermore, geopolitical tensions continue to simmer. The Israel-Hamas war is raging on, exposing divisions among many Western powers, while Russia has warned that the risk of nuclear, chemical or biological weapons being used in its invasion of Ukraine has increased.
All these factors are sapping investor appetite for risk today, which in turn is boosting the appeal of the safer US Dollar.
Pound (GBP) Softens amid Market Anxiety
Meanwhile, the increasingly risk-sensitive Pound (GBP) is struggling amid the downbeat market mood, while a lack of British economic data leaves it exposed to losses.
A recent pullback in Bank of England (BoE) expectations also seems to be undermining Sterling.
Last week, the BoE left interest rates unchanged. However, three of the nine policymakers voted for a hike, while the BoE Governor left the door open to further tightening. This saw some investors place bets on another BoE hike before the end of the year.
Since then, BoE Chief Economist Huw Pill indicated that market expectations for rate cuts in mid-2024 were reasonable.
These comments seem to have dampened speculation that Threadneedle Street will raise interest rates again, thereby removing a key pillar of support for the Pound.
GBP/USD Exchange Rate Forecast: Fed Speech to Hurt the US Dollar?
Looking ahead, Federal Reserve Chair Jerome Powell is due to speak this afternoon. After last week’s weak non-farm payrolls report, there’s a chance he could sound even more dovish than he did in the wake of the Fed decision.
If Powell hints that the Fed is likely finished with its interest rate hiking cycle, we could see the US Dollar come under heavy selling pressure.
Meanwhile, UK data is in short supply over the next two days, which could leave Sterling to trade on market risk appetite.
GBP movement could be muted ahead of the UK GDP data on Friday. Analysts are forecasting a 0.1% contraction in the British economy in the third quarter. This could see the Pound end the week on a sour note.