Pound US Dollar (GBP/USD) exchange rate fluctuates near weekly high amid data lull

Pound US Dollar (GBP/USD) flat despite hawkish central bank sentiment

The Pound US Dollar (GBP/USD) exchange rate is muted this morning amid a lack of fresh data, left vulnerable to market volatility and central bank commentary.

At the time of writing the GBP/USD exchange rate is trading at around $1.2608, virtually unchanged from this morning’s opening rate.

Pound (GBP) wavers amid BoE rate cut uncertainty

The Pound (GBP) is treading water this morning amid a lack of data, seemingly buoyed by hawkish Bank of England (BoE) commentary and an increasing appetite for risk.

As one of two rate-setters to vote for an interest rate hike to 5.5% in last week’s three-way split vote, BoE policymaker Jonathan Haskel maintains a restrictive view towards monetary policy, advocating that it is too early to be considering interest rate cuts.

Haskel alluded to the central bank’s data driven approach, stating:

‘The signs that we’ve seen thus far are encouraging. I don’t think we’ve seen quite enough signs yet.

But if we accumulate more evidence on persistence, then by the very logic I’ve just set out, I’d be happy to change my vote.’

However, Haskel’s hawkish rhetoric offers only limited support to Sterling this morning, amid concerns that persistently high interest rates are suppressing UK economic activity. While Haskel’s peers express opposing guidance, investors may remain hesitant to aggressively bet on GBP.

US Dollar (USD) retreats amid risk-on mood

The US Dollar (USD) shed its safe-haven gains overnight as cheery trade permeates global markets once again this morning.

A shift towards gloomy trading conditions today may see the ‘Greenback’ rebound in the wake of yesterday’s upbeat employment data and subsequently waning Federal Reserve rate cut bets.

Lower-than-expected initial jobless claims served to bolster hopes of a strengthening US labour sector, reinforcing market expectations that the Fed may continue to postpone loosening monetary policy until the latter half of the year.

Furthermore, a hawkish consensus from Fed policymakers this week supports growing speculations that the Fed are likely to keep interest rates ‘higher for longer’ amid US economic strength.

Boston Fed Susan Collins said:

‘The unexpected strength in recent GDP and labor market data exemplifies the on-going resilience of demand, and highlights that the anticipated slowdown in activity may take some time.’

Pound US Dollar exchange rate forecast: Hawkish Fed to Boost USD?

Moving forwards, further commentary from Fed policymaker Neel Kashkari may boost USD On Monday. As the most hawkish Fed, Kashkari will likely push back against rate cuts, arguing that only a few will be implemented throughout 2024, in line with his recent statements.

This could leave already rapidly falling Fed rate cut bets to dwindle further still, bolstering the ‘Greenback’ amid signs that monetary policy could remain tight well into the second quarter.

In the meantime, renewed global inflationary pressures could drive market volatility, leaving the Pound US Dollar exchange rate vulnerable to shifts in risk appetite, amid rising geopolitical tensions and Chinese disinflation.

Should this morning’s upbeat sentiment extend throughout the day, the increasingly risk-sensitive Pound will likely firm against the safe-haven ‘Greenback’. Alternatively, a turn to gloomy trade may see USD take precedent over GBP.

Yasmine Arasteh

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