Pound US dollar (GBP/USD) surges on dovish Fed
Article updated 16:50, 23/08/2024
The pound US dollar (GBP/USD) exchange rate climbed to a fresh yearly-high this afternoon following Federal Reserve Chair Jerome Powell’s latest comments.
Investors widely expected to see a dovish shift amongst rate-setters, following an influx of tepid Fed commentary and easing inflation data in recent weeks.
Speaking at the Fed’s annual summit this afternoon, Powell affirmed that the bank looks to September to begin its monetary easing cycle, stating:
‘My confidence has grown that inflation is on a sustainable path back to 2%. The labour market has cooled considerably from its formerly overheated state. We do not seek or welcome further cooling in labour market conditions.
The time has come for policy to adjust. The direction of travel is clear and the timing and pace of rate cuts will depend on incoming data.’
Looking ahead, could increased US durable goods orders help the ‘greenback’ to recoup some of its losses on Monday?
At the time of writing, GBP/USD is trading at around $1.3219, up approximately 0.9% from today’s opening levels.
Original article continues below:
Pound US dollar (GBP/USD) rises as markets await central bank commentary
The pound US dollar (GBP/USD) exchange rate is firming this morning ahead of further news from the Federal Reserve’s annual summit.
At the time of writing the GBP/USD exchange rate is trading at around $1.3124, up approximately 0.2% from this morning’s opening rate.
US dollar (USD) falters ahead of Fed commentary
The US dollar (USD) is relinquishing its recent gains this morning as investors await further commentary from the Fed’s annual summit.
The ongoing Jefferson Hole Symposium hosts central bank policymakers today for discussions surrounding the Fed’s forward path. With markets pricing in an aggressive policy-easing cycle from the bank in the coming months, any talks of imminent interest rate cuts could see USD sink to fresh multi-month lows.
The publication of the Fed’s latest meeting minutes earlier in the week signalled much of the same, with an excerpt reading:
‘With regard to the outlook for inflation, participants judged that recent data had increased their confidence that inflation was moving sustainably toward 2 percent. Almost all participants observed that the factors that had contributed to recent disinflation would likely continue to put downward pressure on inflation in coming months.’
Notably, Fed Chair Powell is due to deliver a keynote speech at the summit this afternoon, which will likely be under close scrutiny by investors and economists alike. Should Powell signal a preference for monetary unwinding at the Fed’s September meeting, USD could tumble against its rivals.
In the meantime, investors may remain reluctant to place any aggressive bets on the ‘greenback’ amid a data-light start to the session.
Pound (GBP) stymied by public finance woes
The pound (GBP) is largely subdued this morning amid a data-light UK calendar.
However, Sterling maintains its upside against the ‘greenback’, holding close to a one-year high against its US counterpart.
As markets surmise that the Bank of England (BoE) will likely maintain a cautious stance towards further monetary unwinding, following improved economic growth and robust UK data in recent weeks, GBP finds support in pared back BoE rate cut bets.
According to a poll by Reuters, economists now expect the bank to enact just one more rate reduction this year, which may take place in November. This would see the BoE deliver a much less aggressive policy-easing cycle than that of other major central banks, thereby buoying GBP amid a lack of fresh data today.
Stefan Koopman, market economist at Rabobank, commented:
‘We’re witnessing headline inflation inching towards 2.75%-3.00% by year-end, and unemployment may steady… CPI and survey data shows underlying inflation is indeed receding, but at a snail’s pace. Consequently, the data should arm the MPC hawks with enough ammunition to advocate for a cautious and gradual adjustment.’
With a speech from BoE Governor Andrew Bailey in view, any hawkish signals later today could bolster GBP against its rivals.
Pound US dollar exchange rate forecast: Powell speech in focus
Looking ahead, the Fed’s summit could drive notable USD volatility this afternoon. Should the discussion reveal a dovish consensus amongst policymakers, solidified expectation of a September rate cut could see the ‘greenback’ tumble to fresh lows.
Looking to the UK, BoE Governor Andrew Bailey is also due to speak this afternoon at the Jackson Hole Symposium. After a week of upbeat UK data, Bailey may push back against imminent BoE rate cuts, thereby boosting the pound.
Elsewhere, global risk dynamics could continue to drive movement in the pound US dollar exchange rate. Gloomy trading conditions could bolster the safe-haven ‘greenback’, while the increasingly risk-sensitive pound may take precedent amid an improving market sentiment.