Pound US dollar (GBP/USD) weakens as Fed pushes back against rate cuts
The pound US dollar (GBP/USD) exchange rate is facing headwinds this morning following hawkish commentary from Federal Reserve policymakers.
At the time of writing the GBP/USD exchange rate is trading at around $1.2603, down approximately 0.3% from this morning’s opening rate.
US dollar (USD) firms amid hawkish Fed remarks
The US dollar (USD) is extending its overnight gains this morning following talks of continually restrictive monetary policy from Federal Reserve rate-setters.
Governing Fed hawk Christopher J Waller spoke at the Economic Club of New York last night, advocating for higher interest rates in the face of stubborn US inflation.
Waller stated:
‘There is no rush to cut the policy rate. Recent data tells me that it is prudent to hold this rate at its current restrictive stance perhaps for longer than previously thought to help keep inflation on a sustainable trajectory toward 2%.’
With the Fed’s preferred gauge of inflation, the core PCE price index, due for release tomorrow, investors may continue to favour the ‘greenback’ amid speculations of sticky US inflation.
Forecast to report a marginal cooling to 0.3% last month, following January’s notable uptick to 0.4%, shifting rate cut expectations may imbue USD exchange rates with volatility throughout the session.
Pound (GBP) stunted by economic pessimism
The pound (GBP) is on the defensive this morning as a lack of fresh data pushes the UK’s finalised GDP reports into focus.
The data confirmed that the UK fell into a technical recession last year, ratifying that the domestic economy contracted by 0.3% in Q4, for a second consecutive quarter.
The Office for National Statistics cited declines in production, services and construction sectors as the primary drivers of the UK’s economic contraction through the winter months. It was further noted that GDP only rose by 0.1% throughout the entirety of last year, following its post-covid recovery in 2022, which saw 4.3% growth.
The ONS said:
‘Excluding the year 2020, which was affected by the coronavirus (COVID-19) pandemic, this is the weakest annual change in real GDP since the financial crisis in 2009.’
Further consolidation of a fragile UK economy could serve to pressure Bank of England (BoE) policymakers to begin lowering interest rates this summer, as persistently high interest have rates seemingly stifled economic expansion over the past year.
Amid a lack of further releases today, surmounting rate cut bets and economic pessimism may leave Sterling rudderless.
Pound US dollar exchange rate forecast: US jobs data in focus
Looking ahead, American initial jobless claims for the week ending 23 March are due for release this afternoon. Economists expect the number of newly unemployed American citizens to have risen to 215,000 last week, up from 210,000 during the week prior.
Should the data print as forecast, the US labour market may encounter further scrutiny, thereby denting the ‘greenback’.
For the pound, a lack of notable data may leave GBP vulnerable to increased expectations that the BoE could begin to reduce its base rate in June. Market speculations of imminent monetary loosening may see Sterling struggle to garner investor interest.