Pound US Dollar (GBP/USD) Rangebound amid Fed Rate Cut Bets
The Pound US Dollar (GBP/USD) exchange rate is changeable this morning as gloomy trade and bleak UK data releases stifle the currency pairing’s movements.
At the time of writing the GBP/USD exchange rate is trading at around $1.2731, virtually unchanged from this morning’s opening rate.
US Dollar (USD) Wavers amid Fed Rate Cut Expectations
The US Dollar (USD) is trading without a clear trajectory this morning, despite an ongoing spell of risk averse trade.
As geopolitical tensions rise in the Middle East, concerns of a wider regional fallout continue to spook global markets. Despite gloomy trading conditions, however, the ‘Greenback’ is struggling to catch bids as investors speculate that Federal Reserve interest rate cuts could begin in the first quarter.
As central banks seemingly push back against rate cuts, Fed policymaker Raphael Bostic struck a notably hawkish tone last night. Though Bostic discussed his expectation that two interest rate cuts will occur in 2024, he stated that he did not expect to see the first rate cut until the third quarter.
The Fed dove reiterated the central bank’s supposedly restrictive stance, stating:
‘I just want to see the economy continue to evolve with us in that stance and hopefully see inflation continue to get to our 2% level.’
However, investors remained reluctant to resize Fed cut expectations, leaving the ‘Greenback’ to trade without a clear direction for the remainder of today’s session.
Pound (GBP) Drifts Lower following Bleak Retail Data
The Pound (GBP) is fluctuating this morning following the latest British Retail Consortium’s (BRC) retail sales data.
The BRC reported a 1.7% increase in retail sales in December 2023, in comparison to 6.9% growth in the previous year.
Decreased spending in this year’s Christmas period reiterated cost-of-living concerns, indicating that financial difficulties continue to severely affect the average British household.
Helen Dickinson, Chief Executive of the BRC, says:
‘The festive period failed to make amends for a challenging year of sluggish retail sales growth.
Weak consumer confidence continued to hold back spending.’
Pound US Dollar Exchange Rate Forecast: Central Bank Speeches to Drive Volatility?
Later today, Fed Michael Barr will speak. Any dovish commentary from Barr is likely to undermine USD, reinforcing market expectations of imminent interest rate cuts.
On Wednesday, Fed John Williams is also due to give a speech. As one of the central bank’s more neutral policymakers, suggestion of looming interest rate cuts from Williams may also serve to fuel market bets of rate cuts in the first quarter of 2024. This may undermine USD’s upside tomorrow as investors opt for the US Dollar’s peers.
Looking to the UK, BoE Governor Andrew Bailey will address the Treasury Select Hearing on Wednesday afternoon, with reference to December’s Financial Stability Report. Investors may be interested to see whether to Bailey continues to downplay the likelihood of imminent cuts.
In the meantime, the Pound US Dollar exchange rate may be vulnerable to shifts in risk appetite. Amid escalating conflict in the Middle East, a safe-haven dash could see USD attract support.