Pound US dollar (GBP/USD) exchange rate weakens amid UK worries and risk-off mood
(Updated 15:30, 07/10/24) The pound US dollar (GBP/USD) exchange rate briefly touched a fresh three-week low today as anxious investors shunned the increasingly risk-sensitive pound (GBP) in favour of the safe-haven US dollar (USD).
Today is one year since the Hamas attack on Israel that sparked the most recent flare-up in the Middle East. Fears that the anniversary may see further violence are weighing on markets, while the date also underscores just how badly things have deteriorated over the past 12 months.
GBP investors also seem put off by political UK news. Prime Minister Keir Starmer’s Chief of Staff has resigned following ongoing reports of rifts in Downing Street. This comes ahead of the government’s anxiously awaited budget, which is expected to bring tax hikes and spending cuts.
Furthermore, shifting central bank expectations following last week’s events are likely weighing on the pairing. Strong US data and hawkish Federal Reserve comments contrasted sharply with some dovish remarks from Bank of England (BoE) Governor Andrew Bailey.
All these factors have conspired today to drag GBP/USD down to a three-week low, although it has bounced off its worst levels. The pairing is currently trading at $1.3074, down 0.3% on the day.
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Pound US dollar (GBP/USD) exchange rate extends last week’s selloff
The pound US dollar (GBP/USD) exchange rate stumbled this morning, with the currency pairing extending last week’s selloff amid a risk-off market mood and concerns ahead of the UK budget.
At the time of writing, GBP/USD is trading at around $1.3067, around 0.3% lower since this morning’s opening level.
Pound (GBP) falls amid political concerns
The pound (GBP) has resumed its decline against the US dollar (USD) this week, as a downbeat market mood pulls the increasingly risk-sensitive UK currency lower.
In addition, domestic UK news is spooking GBP investors amid a fresh bout of political turbulence.
Over the weekend, Sue Gray – Chief of Staff to UK Prime Minister Keir Starmer – resigned, leading the Prime Minister to reshuffle his team at Downing Street. Gray has been at the centre of an internal row at Number 10, with reports of friction and infighting among the PM’s top team.
While the event itself isn’t hugely significant for the pound, it seems to have further undermined the new Labour government’s efforts to present itself as a beacon of stability following the chaotic last years of the former Tory government.
GBP investors are also uneasy ahead of the government’s budget later this month, amid fears of coming tax hikes and spending cuts.
US dollar (USD) underpinned by risk-off mood
Meanwhile, the safe-haven US dollar is garnering some support today amid a risk-off market mood, although its upside seems limited.
Markets are anxious today, on the anniversary of the Hamas attack on Israel that sparked the latest flare-up in the Middle East. One year on from the attack, the conflict has escalated beyond the borders of Israel and Palestine with no signs of abating.
The violence has continued today, with sirens sounding in Tel Aviv and Israel sending reinforcements for its ground operation in Lebanon. Fears of further attacks are keeping risk appetite in check today.
GBP/USD exchange rate forecast: Fed speeches to boost the US dollar?
Looking ahead, some Federal Reserve speeches later this evening could influence the currency pairing. Policymakers Raphael Bostic and Michelle Bowman are two of the most hawkish rate-setters at the US central bank. Any pushback on bets of another 50bps interest rate cut could boost the US dollar.
Until then, risk appetite could drive most movement in the GBP/USD exchange rate. If the conflict in the Middle East continues to weigh on markets, Sterling could slip lower against the ‘greenback’. In particular, any large-scale attacks or escalations could spark more serious risk aversion, leading to a steeper fall in GBP/USD.