Pound US dollar (GBP/USD) reaches fresh two-month high amid fluctuating market mood

Pound US dollar (GBP/USD) rebounds amid upbeat trade

(Updated 16:30, 17/05/2024) The pound US dollar (GBP/USD) exchange rate strengthened as the session neared an end as an increasing appetite for risk permeated global trade.

While gloomy trading conditions underpinned the safe-haven US dollar this morning, a shifting market mood has seen bullish trade overtake market sentiment. This saw the increasingly risk-sensitive pound (GBP) strengthen against the majority of its rivals, as a lack of wider releases failed to underpin USD’s earlier wins.

In addition to this, a hotly anticipated speech from Federal Reserve Governor Christopher Waller saw the typically hawkish policymaker omit any mention of monetary policy during his address, leaving the ‘greenback’ rudderless.

At the time of writing, GBP/USD is trading at around $1.2694, up approximately 0.2% from today’s morning level.

Original article continues below:

Pound US dollar (GBP/USD) falters amid gloomy trade

The pound US dollar (GBP/USD) exchange rate is on the defensive this morning as anxious trade permeates global markets.

At the time of writing the GBP/USD exchange rate is trading at around $1.2648, down approximately 0.2% from this morning’s opening rate.

US dollar (USD) strengthens on risk-off mood

The US dollar (USD) continues to recoup its recent losses this morning, as a downbeat market sentiment extends into European trading hours.

Amid gloomy trading conditions, jittery investors are favouring the safe-haven ‘greenback’ over its more risk-sensitive rivals.

In addition to this, yesterday’s slew of Federal Reserve commentary appears to underpin USD’s gloomy wins.

Despite signs of easing in the latest US inflation data, released on Wednesday this week, policymakers pushed back against imminent monetary loosening, calling for further evidence of easing inflation persistence.

Fed John Williams was amongst the rate-setters to speak, commenting:

‘I don’t see any indicators now telling me … there’s a reason to change the stance of monetary policy now, and I don’t expect that, I don’t expect to get that greater confidence that we need to see on the inflation progress towards a 2% goal in the very near term.’

With the CME FedWatch Tool showing that the probability of monetary loosening in September has fallen to 68% from a previous 73%, hawkish rhetoric from Fed policymakers appears to be offsetting the US dollar’s disinflationary downside from mid-week trade.

With fresh US releases in short supply, the secure asset will likely be driven primarily by market risk dynamics, as well as shifting Federal Reserve interest rate cut expectations as the week draws to a close.

Pound (GBP) stymied by UK economic woes

The pound (GBP) is struggling to garner investor support this morning as a lack of fresh UK data leave Sterling vulnerable to British economic pessimism.

With macroeconomic releases in short supply, news of increased insolvencies across England and Wales serve to perpetuate UK economic concerns. The UK government’s Insolvency Service reported that company insolvencies rose by 18% in April, jumping to 2,177 as companies grapple with persistently high interest rates and rising costs as well as inflated staff wages.

David Hudson, Restructuring Advisory Partner at FRP:

‘Last week’s GDP figures suggests that the UK economy is finally emerging from its lengthy post-Covid hangover.

But while there is optimism this growth can be sustained, the coming months will continue to be turbulent with more business faltering as they weather the legacy of high interest rates, input costs and wage growth.’

As the Bank of England’s (BoE) high interest rate climate continues to stifle economic growth in businesses and homes alike, further reports of economic stalling across the UK will likely apply renewed pressure to central bank rate-setters to promptly begin its unwinding cycle.

In turn, this could see GBP end the week on a sour note, unable to locate any meaningful upside amid thin trading conditions.

Pound US dollar exchange rate forecast: Fed comments to lift USD?

Looking ahead, a data-light end to the week may see investors look to the latest Federal Reserve commentary. Fed Christopher Waller is due to speak this afternoon, with any hawkish signals likely to lend the ‘greenback’ some support against its rivals.

Otherwise, the pound US dollar exchange rate may be left vulnerable to a shifting market sentiment. Should gloomy trade continue to permeate markets, the US dollar’s winning streak may extend into the latter part of the session. Alternatively, bullish trade could see the increasingly risk-sensitive pound take precedent.

Yasmine Arasteh

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