Pound US dollar (GBP/USD) exchange rate retreats as risk sentiment sours
(Updated 17:15, 04/11/24) After gaining ground as markets opened this week, the pound US dollar (GBP/USD) exchange rate then trimmed its gains as market sentiment soured. However, GBP/USD remains marginally up on the day.
The initial upside was driven by a risk-on market mood, which undermined the safe-haven US dollar (USD) and supported the increasingly risk-sensitive pound (GBP). The optimism came after weaker US data last week cemented bets on a 25bps interest rate cut from the Federal Reserve on Thursday.
US politics also weighed on the ‘greenback’, as the market odds of a Donald Trump victory in the presidential election weakened over the weekend. A Trump victory is seen as being positive for the US dollar, as economists expect his low-tax policies and higher tariffs to push up inflation, thereby forcing the Fed to leave interest rates higher for longer. With bets on a Trump election victory easing, USD lost ground.
However, sentiment soured during the US trading hours, helping the safe-haven ‘greenback’ claw back some losses. In addition, Trump remains the market favourite to win the White House when polls close tomorrow.
At the time of writing, GBP/USD is at $1.2941, having retreated from a daily high of $1.2998.
Original article continues below:
Pound US dollar (GBP/USD) exchange rate buoyed by increased appetite for risk
The pound US dollar (GBP/USD) exchange rate opened this week’s session on the front foot amid a cautiously upbeat market mood. However, the pairing has moved sideways through European trade.
At the time of writing, GBP/USD is trading at $1.2971, up over 0.3% on the day.
Pound (GBP) firms as budget anxiety subsides
The pound (GBP) is enjoying some support today as a cheery mood buoys the increasingly risk-sensitive currency.
In addition, anxiety following the UK government’s Autumn Budget last week seems to have dissipated. GBP investors are now focused on the possibility that the upward revision to the UK inflation forecast from the Office for Budget Responsibility (OBR) could mean that British interest rates remain higher for longer.
The Bank of England (BoE) is set to cut rates when it concludes its meeting on Thursday. However, markets are now unsure whether the bank will pursue another interest rate cut in December.
US dollar (USD) stumbles amid risk-on mood
Meanwhile, the US dollar (USD) slipped as markets opened this week, with a risk-on mood dampening demand for the safe-haven ‘greenback’.
Additionally, last Friday’s dire payrolls report seems to be having an ongoing impact on USD exchange rates.
Jobs creation hit a near four-year low in October, printing at just 12,000. Markets had forecast the payrolls figure to come in at 113,000, while September’s result was 223,000.
This shockingly low number was due largely to recent hurricanes and the strikes at Boeing. However, it is still having a negative impact on the US dollar today.
GBP/USD exchange rate forecast: services PMIs to impact the pairing?
Looking ahead, the GBP/USD exchange rate could see more movement when US markets open this afternoon. The volatility that shook markets last week has not completely died down, with uncertainty ahead of the US presidential election and the Federal Reserve and BoE decisions keeping investors on their toes.
This afternoon also brings the latest US factory orders release, with an expected 0.4% contraction in orders in September potentially denting USD.
Tomorrow morning, the UK’s final PMI could confirm a slowdown in British services activity, which may weigh on GBP. However, the latest US ISM PMI is also expected to show slowing service sector activity in America, so USD may face headwinds of its own.
All the while, investors will be keeping an eye on US politics, with Tuesday being the final day of polling for the presidential election. As the results come in for individual states, the ‘greenback’ could face turbulence.