Pound US Dollar (GBP/USD) Exchange Rate Firms amid Cheery Market Mood
The Pound US Dollar (GBP/USD) exchange rate is ticking higher today as a risk-on market mood boosts the currency pairing.
At the time of writing, GBP/USD is trading at around $1.2698, up 0.4% on the day.
Pound (GBP) Strengthens despite Bleak UK Outlook
The Pound (GBP) is rising against the US Dollar (USD) amid today’s upbeat market mood, thanks to Sterling’s increasingly risk-sensitive status.
The upside in GBP comes despite growing concern about the UK’s economic outlook.
Yesterday, KPMG – one of the ‘Big Four’ global accountancy firms – published its latest global economic report, saying the UK economy is ‘limping’ along.
Yael Selfin, Vice Chair and Chief Economist at KPMG in the UK, commented:
‘UK economic activity has outperformed expectations, but the outlook remains weak and vulnerable to shocks. Risks to the outlook are skewed to the downside, and stem from more persistent inflation, delayed impact of monetary policy, and structural weakness of labour supply.’
This has been somewhat echoed today by investment giant Pimco. The firm has warned that the UK is at risk of a hard landing, as the Bank of England’s (BoE) aggressive interest rate hiking cycle continues to choke the economy.
Pimco also said that there is ‘a higher probability of more significant economic deterioration’ in the UK than in the US.
These worries may be capping Sterling’s upside today, but the current risk-on mood is lifting it against the safer US Dollar nonetheless.
US Dollar (USD) Softens amid Risk-On Trade
Meanwhile, the cheery mood is sapping support for the safe-haven ‘Greenback’.
Investors have been growing increasingly hopeful in recent months that 2024 may bring a turnaround in the global economy.
The world’s key central banks are expected to begin cutting interest rates next year, lowering global borrowing costs and spurring growth.
This optimism is lifting the market mood today, putting pressure on USD.
In addition, bets that the Fed may be one of the first banks to begin cutting rates are also denting the ‘Greenback’. Markets are pricing in a 65% chance of a rate cut in March.
GBP/USD Exchange Rate Forecast: UK Inflation to Lift the Pound?
Looking ahead, the main focus for GBP investors will be the UK’s consumer price index, due out Wednesday morning.
Economists expect to see a modest cooldown in both headline and core inflation, from 4.6% to 4.4% and from 5.7% to 5.6%, respectively.
Such a small fall in inflation could underpin the Pound, as it would reinforce the Bank of England’s recent narrative that interest rates will likely stay higher for longer.
If inflation is even stickier than expected, Sterling could surge higher, while a below-forecast reading could lead the Pound to falter.
Turning to the US Dollar, the next key data release is the American consumer confidence report for December, due Wednesday afternoon. With morale expected to improve, USD could tick higher.
In the meantime, risk appetite may drive the Pound US Dollar exchange rate. If the upbeat mood persists, Sterling could strengthen further against the ‘Greenback’.