Pound US Dollar (GBP/USD) exchange rate muted by growing UK economic concerns
The Pound US Dollar (GBP/USD) exchange rate is rangebound this morning, as the UK economic outlook continues to darken.
At the time of writing, GBP/USD is trading at around US$1.2708, showing little movement from the morning’s opening levels.
Pound (GBP) rocky rising profit warning levels
The Pound (GBP) is enduring volatile trade this morning, as a lack of macroeconomic data leads investors to focus on domestic headlines.
EY-Parthenon found that 18% of public firms in the UK had issued profit warnings, higher than the amount preceding the 2008 financial crash. Between elevated interest rates and dwindling confidence, more and more UK firms are beginning to struggle financially.
Jo Robinson, a partner for EY-Parthenon, commented:
‘While pressure around costs eased somewhat toward the year-end, the uptick in warnings caused by delays to business decisions and weak consumer confidence indicates an ongoing reluctance to commit to discretionary spending.’
Elsewhere, wavering levels of risk appetite may be further pressuring Sterling. With tensions escalating in the Red Sea, investors are seeming hesitant to fully support riskier assets.
US Dollar (USD) muted as investors look ahead to Fed meeting
The US Dollar (USD) is trading in a mixed capacity this morning, as investors look ahead to the latest Federal Reserve interest rate decision.
On Wednesday, the Fed is widely expected to keep rates unchanged, but push back against market expectations. Following dovish forecasts in December, the expectation grew that the Fed would begin cutting rates sooner than other central banks.
Analysts at ING commented that:
‘A March interest rate cut looked too soon to us given strong growth and the tight jobs market, so the recent Fed official commentary downplaying the chances of an imminent move hasn’t come as a surprise. Markets are now pricing just a 50% chance of such a move with nothing priced for the 31 January FOMC.’
With this in mind, investors are likely remaining hesitant ahead of the meeting, as the path forward seems unclear.
Additionally, a mixed mood is permeating markets this morning, which is likely serving to keep the safe-haven ‘Greenback’ muted.
Pound US Dollar exchange rate forecast: Signs of cooling US employment to dent USD?
Looking ahead for the US Dollar, the core catalyst of movement before the Fed’s interest rate decision may be the latest JOLTs jobs opening data.
In December, the number of jobs created is forecast by economists to have fallen from 8.79 million to 8.75 million. If this prints accurately it may weaken USD by suggesting slack in the labour market, which may further lead to increased Fed rate cut bets.
For the Pound, due to a lack of data the focus is likely to shift towards the Bank of England’s (BoE) imminent rate decision.
As such, trade for Sterling may be largely rangebound in the short term, as investors remain at the sidelines. Additionally, risk appetite is likely to play a role in shaping Sterling’s direction. If the mood brightens, the increasingly risk-sensitive Pound may gain ground.