Pound US dollar (GBP/USD) exchange rate soars as BoE Pill cautions against early rate cuts

Pound US dollar (GBP/USD) exchange rate rallies following hawkish BoE remarks

Article updated 15:30, 23/04/2024:

The pound US dollar (GBP/USD) exchange rate is on the march this afternoon, following a hawkish speech from Bank of England (BoE) Chief Economist Huw Pill.

During a speech, Pill outlined that he doesn’t believe enough of the UK’s situation has changed to warrant a rate cut in the immediate future. He stated that he believes the BoE is ‘some way off’ cutting interest rates.

Pill further stated that:

‘In my view, against the background of a welcome decline in headline inflation, the outlook for UK monetary policy in the coming quarters has not changed substantially since the beginning of March. In my view there are greater risks associated with easing too early should inflation persist rather than easing too late should inflation abate.’

Additionally, the latest US preliminary PMIs for April missed forecasts. Growth weakened in the services sector, while the US manufacturing sector slipped into contraction, weakening USD against most peers.

At the time of writing, GBP/USD is trading at around US$1.2445, rising by just under 0.8% from the morning’s opening rates.

Original article continues below:

Pound US dollar (GBP/USD) exchange rate firms as UK service sector grows

The pound US dollar (GBP/USD) exchange rate is strengthening this morning, in the wake of robust UK service sector data.

At the time of writing, GBP/USD is trading at around US$1.2374, an increase of roughly 0.2% from today’s opening rates.

Pound (GBP) lifted by service sector growth

The pound (GBP) is rising this morning, following the publication of the latest preliminary UK services PMI.

In April, the vital sector grew significantly more than initially anticipated, with the index printing at 54.9. Markets had forecast a downtick from 53.1 to 53, which was sidestepped as the sector continued to drive economic improvement in the UK.

Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, commented that:

‘Early PMI survey data for April indicate that the UK economy’s recovery from recession last year continued to gain momentum. Improved growth in the service sector offset a renewed downturn in manufacturing to propel overall business growth to the fastest for nearly a year, indicating that GDP is rising at a quarterly rate of 0.4% after a 0.3% gain in the first quarter.’

However, any gains are likely being offset by the UK’s manufacturing sector slipping back into contraction. April’s preliminary PMI for the sector printed at 48.7, down from 50.3 in March.

Elsewhere, the market mood remains upbeat this morning, which could be further garnishing the increasingly risk-sensitive pound.

US dollar (USD) consolidates recent gains amid lack of data

The US dollar (USD) is consolidating its recent gains this morning, as markets look ahead to latest preliminary PMI flashes.

Both American services and manufacturing sector activity is forecast to have improved in April, which could lift USD later today.

Ahead of this, bullish trading conditions are likely limiting USD’s gains this morning. Due to the currency’s safe-haven stature, the upbeat market mood is serving to temper its appeal against riskier assets.

Pound US dollar exchange rate forecast: CBI data in focus

Looking ahead for the pound, investor attention may turn towards a duo of data releases from the Confederation of British Industry (CBI).

Tomorrow, the latest business optimism index for the second quarter of 2024 is due to print. Additionally, the latest industrial trends orders data for April is scheduled for release.

While business optimism is forecast to have increased, any gains could be offset by a negative industrial trends print. This could prompt wavering trade for Sterling.

For the US dollar, trade is likely to be quiet ahead of Thursday’s GDP growth rate. In the first quarter of this year, the US economy is forecast to have grown by 2.5%, which could strengthen USD.

However, as it is forecast to be a slower rate of growth compared to Q4 2023, this may cap any gains for the US dollar.

Elsewhere, risk appetite may shape the pairing’s direction in the short term. If trading conditions remain upbeat, GBP/USD could strengthen further.

John Mulcahey

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