Pound US Dollar (GBP/USD) firms despite data lull
The Pound US Dollar (GBP/USD) exchange rate is edging higher this morning amid a lack of market moving data and shifting interest rate cut expectations.
At the time of writing the GBP/USD exchange rate is trading at around $1.279, up approximately 0.2% from this morning’s opening rate.
Pound (GBP) fluctuates amid lack of data
The Pound (GBP) is trading in a wide range against its peers this morning amid a data-light start to the week.
As the UK parliament’s ‘Budget week’ opens, investors may remain reluctant to place any aggressive bets on Sterling ahead of the Spring Budget’s publication on Wednesday afternoon.
Chancellor Jeremy Hunt is expected to announce a packet of ‘smart tax cuts’, while delivering his spending plans, in a Budget designed to jumpstart UK economic growth heading into the second quarter.
While this could lift GBP sentiment, surmounting concerns that the Treasury lacks enough ‘fiscal headroom’ to deliver such cuts has markets speculating that the Budget will likely underwhelm.
Susannah Streeter, Head of Money and Markets at Hargreaves Lansdown, commented:
‘Speculation over what’s in and what’s out of Jeremy Hunt’s budget is reaching fever pitch, ahead of the big reveal on Wednesday. What appears clear is that the Chancellor has a lot less fiscal room to play with than he hoped, which is why he’s played down speculation about significant tax cuts.’
While significant public debt and hefty tax burdens continue to weigh on the UK government, Hunt and his cohorts are at risk of delivering yet another disappointing economic proposal, with concerns that GBP could plummet later in the week amid sluggish economic growth plans.
US Dollar (USD) wavers as Fed rate cut bets rise
The US Dollar (USD) is subdued this morning amid shifting Federal Reserve interest rate cut expectations.
With notable economic data in short supply throughout today’s session, last week’s downbeat ISM manufacturing PMI seems to weigh on USD exchange rates, as weak US factory activity fuels Fed rate cut bets.
The unexpected downturn in US manufacturing appears to have boosted the likelihood of a May rate cut to 25.8%, according to the CME FedWatch Tool, limiting USD’s upside potential ahead of this week’s high-impact releases.
As the session progresses, thin trading conditions could see the safe-haven ‘Greenback’ left vulnerable to market volatility and fluctuating Fed rate cut bets.
Pound US Dollar exchange rate forecast: Fed speech to dent USD?
A speech from Federal Reserve dove, Patrick T Harker could serve to undermine the ‘Greenback’ later today. However, should Harker deviate from expectation and advocate for restrictive monetary policy, USD could firm amid a hawkish Fed consensus.
Looking ahead, the core catalyst of USD movement tomorrow will likely be the release of the ISM services PMI. The index is due to print at 53 in February, marginally decreasing from 53.4 in the previous month. However, should the data print as expected, remaining firmly in growth territory, the ‘Greenback’ will likely strengthen, as service activity wavers near multi-month highs.
With the US service sector accounting for a large majority of US economic activity, the index could drive significant USD movement.
Looking to the UK, a lack of notable reports until later in the week could see GBP exchange rates left vulnerable to market volatility. The increasingly risk-sensitive Pound could catch bids amid a bout of cheery trade. Alternatively, gloomy trading conditions could see the safe-haven US Dollar take precedent.