Pound US dollar (GBP/USD) retreats as markets await Fed update

Pound US dollar (GBP/USD) exchange rate wavers ahead of weighty US releases

Article updated 16:40, 11/6/2024

The pound US dollar (GBP/USD) exchange rate faced headwinds heading into the latter part of today’s session amid a lack of data and an increasingly risk-averse market sentiment.

With high-impact US releases due out tomorrow, including the latest American inflation reports and the Federal Reserve’s hotly anticipated interest rate decision, the US dollar (USD) may remain somewhat muted in the interim, as USD investors stand reluctant to place any aggressive bets.

While markets and investors alike expect the Fed to maintain its hawkish stance, any policymakers divergence or unexpected inflationary cooling could imbue the ‘greenback’ with additional volatility.

Anthony Saglimbene, Chief Market Strategist at Ameriprise Financial, was amongst the top economists who expect to see little change in the Fed’s monetary outlook.

‘The economy is holding up, services, inflation is still high, and they won’t be ready to start cutting interest rates until they believe inflation is moving back to the 2% target.

I think we’re going to need to see a few more months of inflation sustainably moving lower before the Fed would even entertain cutting interest rates.’

Looking ahead, will the market moving US publications, alongside the latest UK GDP data, fuel volatility in the currency pairing?

At the time of writing, GBP/USD is trading at around $1.2721, virtually unchanged from today’s opening rates.

Original article continues below:

Pound US dollar (GBP/USD) quiet despite loosening UK labour market

The pound US dollar (GBP/USD) exchange rate is subdued this morning following the latest British jobs data.

At the time of writing the GBP/USD exchange rate is trading at around $1.2728, virtually unchanged from this morning’s opening rate.

Pound (GBP) stifled by labour market concerns

The pound (GBP) is fluctuating this morning following the UK’s latest employment data.

UK unemployment unexpectedly rose to 4.4% in April, reaching its highest level since summer 2021.

However, while average UK earnings continued to grow in the three-months preceding April 2024, the mixed jobs data further muddies the water surrounding when the Bank of England could begin to lower its base rate.

Thomas Pugh, economist at RSM UK, argued that today’s employment data could propel the likelihood of an August rate cut, stating:

‘Today’s data will make pretty uncomfortable reading for the MPC.

But it is clear the labour market is loosening and forward-looking indicators suggest pay growth will slow, combined with a further fall in inflation in May, that should be enough to justify the Bank of England following the ECB with a rate cut in August.’

Meanwhile, other economists have inferred that today’s data is unlikely to evoke any significant changes for the central bank, leaving Sterling to trade mostly sideways this morning.

US dollar (USD) wavers ahead of US inflation

The US dollar (USD) is holding close to a monthly-high this morning amid a lack of fresh US releases.

With data in short supply, market anticipation for the upcoming Federal Reserve monetary policy meeting and looming inflation data serves to keep the ‘greenback’ afloat.

Investors and economists alike are widely expecting the Fed to maintain a hawkish outlook following months of robust data and stubborn US inflation.

Nathan Sheets, a former Senior Economist at the Fed and current Global Chief Economist at Citi, said:

‘The Fed’s narrative is going to be very similar to what we’ve been hearing: We’ve made progress bringing down inflation; we’re not in a hurry to cut rates’.’

With headline inflation due to hold at 3.4% upon its release on Wednesday afternoon, further signs of stubborn US price pressures may lift the ‘greenback’, driving speculations of deferred Fed rate cuts.

Elsewhere, an increasingly risk-averse market mood is lending the safe-haven US dollar some modest support this morning.

Pound US dollar exchange rate forecast: UK GDP in focus

Looking ahead, the UK’s latest GDP reports are due for release tomorrow morning. Domestic growth is expected to have flatlined on a monthly basis in April, stalling from the previous month’s 0.4% expansion. Should the data print as forecast, a return to weak growth may revive the UK’s recent recession woes, deterring investor interest in the pound.

Looking to the US, the latest inflation data may underpin USD exchange rates, should signs of sticky US inflation persist. In addition to this, the Federal Reserve’s latest interest rate decision is due on Wednesday evening, with any hawkish rhetoric likely to boost the ‘greenback’.

Yasmine Arasteh

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