The pound US dollar dollar (GBP/USD) exchange rate is trending higher today as cautious rhetoric from the Federal Reserve dampens US dollar (USD) appeal.
At the time of writing, GBP/USD is trading at $1.3377, having firmed in the past 24 hours by more than 0.6%.
US dollar (USD) faces headwinds as successive rate cuts expected
The US dollar is trending lower against the majority of its peers this morning, depressed by a risk-on mood and dovish comments from more than one Fed policymaker.
Markets are pricing in a 50% likelihood of further rate cuts this year amounting to 75bps in total; such speculation is boosted by comments such as those of Minneapolis Fed President Neel Kashkari.
Kashkari said yesterday that there should be and will be additional interest rate cuts in 2024. His outlook is shared by Chicago Fed President Austan Goolsbee, who observed:
‘Many more rate cuts are likely needed over the next year, rates need to come down significantly.’
Further depressing USD is Monday’s disappointing manufacturing data: September’s PMI printed at 47 rather than the 48 forecast. This move further into contraction territory reflects ongoing challenges to economic growth in the USA.
Pound (GBP) buoyed despite Andrew Bailey comments
The pound (GBP) is finding support today as risk appetite revives. Overnight comments from Bank of England (BoE) governor Andrew Bailey had a slight dampening effect but were unable to depress Sterling significantly.
Bailey told markets ‘I’m very encouraged that the path of inflation is downwards therefore I do think the path for interest rates will be downwards, gradually.’ Nevertheless, the BoE remains hawkish compared with other major central banks.
Following Monday’s disappointing PMI data, comments from S&P global analyst Chris Williamson reassured investors that the worse-than-forecast outcome was nothing too worrying:
‘A slight cooling of output growth across manufacturing and services in September should not be viewed as overly concerning.’
Amid a scarcity of an further significant data from the UK, the pound is likely to trade upon central bank commentary and general risk sentiment for the remainder of the session.
GBP/USD exchange rate forecast: US consumer confidence to improve?
The pound US dollar exchange rate could trade this afternoon according to the latest consumer confidence data from the USA. Confidence is expected to have improved in September, albeit marginally.
If the reading prints at 103.8 as expected, the ‘Greenback’ may experience marginal gains. If the data exceeds forecasts, a downturn in GBP/USD could be more pronounced.