Pound US dollar (GBP/USD) exchange rate rebounds amid UK investment hopes
(Updated 13:50, 25/10/24) The pound US dollar (GBP/USD) exchange rate has staged a strong recovery today amid hopes that the UK Autumn Budget next week will boost investment.
Later today, Chancellor Rachel Reeves is set to confirm that she will be changing the UK government’s fiscal rules to allow her to borrow up to £50bn for infrastructure investment. The plans have been welcomed by banking giants Lloyds and Barclays amid hopes that greater public investment will offset the ill effects of higher taxes and spending cuts.
The optimism has boosted the pound (GBP) today, allowing the British currency to shrug off downbeat PMI data. Although October’s preliminary PMIs showed service sector activity slowing to an 11-month low, Sterling is still attracting support. Meanwhile, a risk-on mood is weighing on the safe-haven US dollar (USD).
At the time of writing, GBP/USD is trading at $1.2975, up almost 0.5% from its opening level.
Original article continues below:
Pound US dollar (GBP/USD) exchange rate climbs but PMIs cap gains
The pound US dollar (GBP/USD) exchange rate is rising today amid fresh optimism over Labour’s upcoming budget. However, weaker UK PMIs are capping Sterling’s upside.
At the time of writing, GBP/USD is trading at $1.2958, up more than 0.3% on the day.
Pound (GBP) buoyed by UK investment optimism
The pound (GBP) is enjoying support this morning as renewed optimism ahead of the UK Autumn Budget boosts Sterling.
After months of speculation, Chancellor Rachel Reeves is due to announce a change to the government’s fiscal rules that will allow her to spend around £50bn more for infrastructure investment. The government has tried to make clear, however, that it will not borrow recklessly, and that tax rises and spending cuts are still coming to fund day-to-day government spending.
Yesterday, the Treasury’s plans got the approval of Lloyds Banking Group. Today, Barclays CEO CS Venkatakrishan is backing the budget. Speaking after the release of the bank’s third-quarter results today, Venkatakrishan said:
‘I see from the Labour government – and I’ve seen it from before they came into power – a very clear vision about what they want for the UK.
‘That vision is one of economic growth, and growth that is broad reaching’.
However, Sterling’s upside has been capped by weaker-than-forecast UK PMI surveys. October’s preliminary results showed a surprise slowdown in service sector activity, while manufacturing ground to a near halt. These weaker PMIs are putting some pressure on GBP.
US dollar (USD) softens as risk appetite returns
Meanwhile, the safe-haven US dollar (USD) is retreating today as market risk appetite improves.
Risk aversion has supported USD in recent days, amid the escalating crisis in the Middle East and the potential impacts of a second presidential term for Donald Trump.
However, markets are looking more hopeful today, which is weighing on the ‘greenback’.
GBP/USD exchange rate forecast: US PMIs to boost the dollar?
Looking ahead, the US PMIs due out this afternoon could impact the GBP/USD exchange rate. Although the latest surveys from S&P aren’t as impactful as the ISM PMIs, they could still influence the US dollar.
Analysts expect October’s preliminary releases to show another robust expansion in US service sector activity this month. Such a result could see the US dollar strengthen.
Meanwhile, anticipation ahead of the UK Autumn Budget could continue to influence the pound. Although the mood today is hopeful, speculation around the budget has caused GBP volatility this month. Hopes of pro-growth measures have lifted Sterling while tax-hike fears and rumours of plans in ‘disarray’ have dented the pound. Will the current optimism continue to lift GBP?