Pound US Dollar (GBP/USD) Exchange Rate Slumps amid Risk-Off Trade
Article updated 16:20, 2/01/2024:
The Pound US Dollar (GBP/USD) exchange rate is in freefall this afternoon, as bearish trade overrides the session.
Due to the Pound’s (GBP) increasingly risk-sensitive nature, GBP is weakening sharply against the safe-haven US Dollar (USD).
Furthermore, rising US Treasury bond yields are likely further garnishing the ‘Greenback’ against its peers.
At the time of writing, GBP/USD is trading at around US$1.2630, a sharp decline of just over 0.7% from the morning’s opening levels.
Original article continues below:
Pound US Dollar (GBP/USD) Exchange Rate Rangebound amid Downbeat UK Manufacturing Data
The Pound US Dollar (GBP/USD) exchange rate is narrowing this morning, following a downbeat UK manufacturing PMI.
At the time of writing, GBP/USD is trading at around US$1.2714, showing little movement from the morning’s opening rates.
Pound (GBP) Curtailed by Weaker-Than-Expected Manufacturing PMI
The Pound is under pressure this morning, following a downward revision to the final Manufacturing PMI for December.
The key sector contracted at an increased rate towards the tail-end of last year, sparking renewed concerns over the UK economy.
Rob Dobson, Director at S&P Global Market Intelligence, commented that:
‘The downturn has hit manufacturers’ confidence, which dipped to its lowest level in a year, and encouraged renewed cost caution with further cutbacks to stock levels, purchasing and employment.
With concerns about high interest rates and the cost-of-living crisis hurting demand, the outlook for manufacturers in the months ahead remains decidedly gloomy.’
However, Sterling may see its losses stemmed over today’s trade by a moderately upbeat market mood. As an increasingly risk-sensitive currency, these cheerier trading conditions can support the Pound against safer peers.
US Dollar (USD) Quiet as Markets Await FOMC Minutes
The US Dollar is off to a relatively quiet start today, as a lack of data tempers sentiment towards USD.
Owing to increased bets on Federal Reserve interest rate cuts, the market mood is on the cheery side this morning. Investors continue to eye March as the starting point for the Fed to loosen monetary policy, capping USD.
The focus, as such, is likely shifting towards tomorrow’s FOMC meeting minutes. Due rate cut bets, and a recent shift in Fed rhetoric, the contents of the minutes will be closely scrutinised.
According to CME’s FedWatch tool, markets are pricing in a 70% chance of a March rate cut. However, the Fed is likely to be hawkish in its pushback.
Stephen Innes, a managing partner with SPI Asset Management, commented:
‘While a stronger-than-expected jobs report could shake this conviction, a reversal would require a resurgence in realised inflation, triggering a significantly more assertive hawkish stance from (Fed Chair Jerome) Powell and other key figures to discourage March or May rate cuts bets.’
However, US Treasury bond yields are ticking higher this morning, likely providing some cushioning for the ‘Greenback’.
Pound US Dollar Exchange Rate Forecast: Upbeat Economic Data to Underpin USD?
Looking ahead for the US Dollar, the year is set to start with a duo of impactful data releases during tomorrow’s trade.
Firstly, the latest ISM manufacturing PMI reflecting December’s activity is due to print. Economists forecast an improvement on a monthly basis, but for the index to remain in contraction.
This is accompanied by the latest JOLTs job openings figures. 8.85 million jobs are forecast to have opened in November, an increase over October’s levels.
Meanwhile, data releases are thin on the ground for the Pound, which may lead to restricted movement.
However, bullish trading conditions could bolster GBP against safer assets such as the US Dollar.