Pound US dollar (GBP/USD) exchange rate wobbles amid absence of data
The pound US dollar exchange rate is changeable this morning, as a lack of fresh data leaves the currency pairing vulnerable to shifting interest rate cut expectations.
At the time of writing the GBP/USD exchange rate is trading at around $1.2918, virtually unchanged from this morning’s opening rate.
Pound (GBP) wavers amid data lull
The pound (GBP) is largely subdued this morning amid a data-light start to the week.
Ahead of this week’s market-moving PMI releases, which are due to print tomorrow morning, a slight uptick in Bank of England (BoE) interest rate cut bets seemingly applies light pressure to Sterling, deterring investor support.
The BoE is due to deliver its next monetary policy decision on 1 August, leaving markets with just over a week to mull over whether an August rate cut is on the cards. Recent economic data has painted a muddled picture for markets as to whether the BoE is likely to defer any monetary loosening until later in the third quarter.
Last week’s sticky services inflation coupled with cooling wage growth data has left and economists alike split, with market consensus now presenting a 50% likelihood that the central bank will reduce is base rate next month.
Novo Constare, CEO and co-founder of Indeed Flex, commented:
‘A rate cut is a possibility next month but could still be premature while wage growth remains strong and prices in the UK’s dominant services sector continue to rise.’
With data in short supply for the remainder of today’s session, investors could remain hesitant to place any aggressive bets on Sterling ahead of tomorrow’s high-impact PMI figures.
US dollar (USD) subdued amid lack of data
The US dollar (USD) is wavering this morning with fresh US data running thin on the ground.
Much like its UK counterpart, a lull in the US calendar leaves the ‘greenback’ vulnerable to shifting Federal Reserve interest rate expectations. Fed rate cut expectations have surged in recent months, with the CME FedWatch Tool now pricing in almost a 92% chance that the central bank will begin its unwinding cycle in September.
The rise in Fed rate cut bets may be largely attributed to signs of easing US inflation, paired with a dovish tilt seen in policymaker rhetoric this month.
A recent review of the Fed’s latest meeting minutes and public remarks by Deutsche Bank highlights a notable shift in central bank’s outlook. The review underscores Fed Chair Jerome Powell’s retreat from a hawkish stance, thereby signalling that the central bank could be nearing its first interest rate cut.
An excerpt from the review, which was led by economists Matthew Luzzetti and Amy Yang, reads:
‘We put substantial weight on Powell’s recent comments, which clearly skew in a dovish direction relative to many of his colleagues.’
Elsewhere, a mixed market sentiment further deters any notable investor interest in the safe-haven US dollar.
Pound US dollar exchange rate forecast: PMIs in focus
Looking ahead, the latest batch of preliminary PMIs are due for release in both the US and the UK tomorrow.
In the UK, activity is due to have accelerated this month in both the services and manufacturing sectors, with each index due to print at 52.5 and 51.1, respectively. Should the data print as forecast, signs of robust activity across the British private sector could lift GBP.
In the US, markets forecast a slight deceleration in the vital services sector, with projections that the index will slump to 55.4 in July.
Should the index show that activity in the American services sector slowed this month, USD may face headwinds.