Pound US Dollar (GBP/USD) Exchange Rate Ticks Upward amid Fed Rate Cut Bets
The Pound US Dollar (GBP/USD) exchange rate is firming this morning, as investors adjust their expectations of Federal Reserve interest rate cuts.
At the time of writing, GBP/USD is trading at around US$1.2660, an increase of just over 0.2% from the morning’s opening rates.
US Dollar (USD) Fades as Cooling Inflation Fuels Fed Cut Bets
The US Dollar (USD) is edging lower this morning, as investors continue to mull over yesterday’s core PCE price index.
The Federal Reserve’s preferred inflation gauge eased to 3.5% in October, showing that inflation was on a downtrend.
As such, investors are beginning to bet on imminent interest rate cuts from the Fed, or that the hiking cycle is over. Fed officials throughout the week have maintained caution, with some aiming to remain hawkish.
San Francisco Fed President Mary Daly commented:
‘I’m not thinking about rate cuts at all right now. I’m thinking about whether we have enough tightening in the system and are sufficiently restrictive to restore price stability.
Elsewhere, focus is likely shifting towards the impactful US data due this afternoon. The latest ISM manufacturing PMI is due to print, with economists expecting signs of a slowdown. This could weaken USD exchange rates later in the session.
Then, Fed Chair Jerome Powell is due to deliver a speech. If he appears coy about the need for further tightening, USD could weaken amid renewed rate cut bets.
Pound (GBP) Underpinned by Optimistic Trade
The Pound (GBP) is wavering this morning, as a lack of data prevents GBP from finding a clear direction.
This is leaving Sterling to trade largely on market dynamics this morning, with the tentatively upbeat mood serving it well.
As an increasingly risk-sensitive currency, the morning’s modestly bullish tone is keeping GBP afloat. However, the lack of further catalysts for movement is keeping its gains limited in scope.
This could additionally serve to mute the Pound over the course of the session, as investors look elsewhere.
Pound US Dollar Exchange Rate Forecast: US Data in Focus
Looking ahead to early next week for the US Dollar, Tuesday brings the release of ISM’s service PMI for November.
Economists forecast the reading to show signs of slowdown in the vital sector, with the index expected to print at 51.5. If this forecast proves accurate, USD exchange rates could weaken.
This is then followed by the latest JOLTs job openings data. The expectation is for a fall in the number of job openings in October, from 9.553 million to 9.4 million. This may show signs of looseness in the US labour market, which could dent the ‘Greenback’.
For the Pound, the data drought is set to continue early next week. As such, investors may focus on the final service PMI reading for November, due on Tuesday.
If the index confirms a return to growth for the UK’s service sector, the Pound may rise as recession jitters ease.