Pound US dollar (GBP/USD) exchange rate continues to waver ahead of Fed monetary meeting
(Updated 15:45, 01/05/2024) The pound US dollar (GBP/USD) exchange rate continued to trade sideways heading into the latter part of the session despite a disappointing batch of US data.
Firstly, the American ISM manufacturing PMI printed below forecasts at 49.2, dipping back into contraction territory in April, after a brief upturn in March. The unexpected contraction indicated that conditions within the US manufacturing sector appeared to soften once again last month.
In addition to this, the latest JOLTs job openings report tumbled to a three-year low in March, declining by 325,000.
However, markets appeared largely unmoved by the disappointing releases, with the US dollar (USD) holding steady against its rivals, in anticipation of the highly impactful Federal Reserve interest rate decision, due this evening.
Stuart Paul, economist at Bloomberg, noted:
‘With the labour market moving into better balance, we expect wage pressures to wane in months ahead. Still, with inflation consistently surprising to the upside to start the year, we expect the Fed to remain on hold at the May and June FOMC meetings.’
Investors maintained their apparent reluctance to place any aggressive bets on the ‘greenback’ with the Fed’s monetary update in sight, leaving the currency pairing muted, amid a lack of UK data to boost the pound’s (GBP) upside.
At the time of writing, GBP/USD is trading at $1.2487, marginally down from an earlier $1.2494 and virtually unchanged from its opening levels.
The focus moving forward is the Federal Reserve’s interest rate decision and accompanying press conference. Could any hawkish signals spark a USD rally?
Original article continues below:
Pound US dollar (GBP/USD) subdued as markets anticipate Fed update
The pound US dollar (GBP/USD) exchange rate is quiet this morning, ahead of the Federal Reserve’s looming monetary policy update, while fresh UK data remains in short supply.
At the time of writing the GBP/USD exchange rate is trading at around $1.2494, virtually unchanged from this morning’s opening rate.
US dollar (USD) rangebound ahead of Fed monetary update
The US dollar (USD) is trapped in a narrow range this morning as markets anticipate an influx of high impact releases due later in the session.
Amongst the upcoming releases, the core catalyst of USD movement will be the Fed’s latest interest rate decision.
According to LSEG data, Fed interest rate cut expectations have drastically fallen since the start of the year, with markets currently pricing in roughly 31 basis points of interest rate cuts for the remainder of 2024, in comparison to the 150bps worth of cuts previously anticipated.
While investors and economists alike are firmly betting on a sixth consecutive rate hold, markets will be eager to assess any forward guidance delivered alongside the Fed’s latest monetary update for signs as to when the central bank may begin its unwinding cycle.
In the meantime, investors may remain reluctant to place any aggressive bets on the US dollar.
Pound (GBP) wavers on disappointing PMI
The pound (GBP) is struggling to gain ground this morning as the UK’s finalised manufacturing purchasing managers index (PMI) missed expectations.
The PMI slipped to 48.7 in April, from 50.3 in the previous month, and below preliminary expectations of 50.3.
The unexpected decline saw hopes of a rebound in the UK’s manufacturing sector dimmed this morning, as the index showed a return to contraction territory following a brief upturn in March.
Rob Dobson, Director at S&P Global Market Intelligence, said:
‘The sector is still besieged by weak market confidence, client destocking and disruptions caused by the ongoing Red Sea crisis, all of which are contributing to reduced inflows of new work from domestic and overseas customers, with specific reports of difficulty securing new contract wins from Europe, the US and Asia.’
Economists cited a decline in new orders as the key driver of this month’s manufacturing downturn, leaving GBP on the defensive amid revived factory woes.
Pound US dollar exchange rate forecast: markets eye US data
Looking ahead, the Fed’s latest interest rate decision is in focus. Any hawkish signals could see USD rally against the majority of its peers.
Prior to the central bank’s update, the latest ISM manufacturing PMI is due out in the US. Markets forecast a marginal slowing of activity in the US manufacturing sector in April, with expectations that the index will print at 50, slightly down from last month’s 50.3. Signs of decreased factory activity could apply some light pressure to USD exchange rates.
Also due for release are the latest American JOLTs job openings. Economists forecast a slight decrease in the number of jobs added by the US economy in March, to 8.69 million. Should the data print as forecast, the US labour sector may come under scrutiny once again amid signs of loosening employment opportunity.
Looking to the pound, a lack of notable releases through the remainder of the session will likely leave GBP vulnerable to market volatility. High impact US releases may fuel a safe-haven dash, causing the increasingly risk-sensitive pound slump amid a gloomy market sentiment.