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GBP/USD Exchange Rate to Firm as Fed Comments Trigger Risk-On Trade?

GBP/USD Exchange Rate to Climb amid Improving Market Mood?

The Pound US Dollar (GBP/USD) exchange rate is strengthening this morning as investors reduce their bets for Federal Reserve interest rate rises following comments made by Fed Chairman Jerome Powell yesterday evening.

At the time of writing the GBP/USD exchange rate is trading at around $1.2131, which is up roughly 0.4% from this morning’s opening rate.

US Dollar (USD) to Remain Under Pressure Following Fed Comments?

The US Dollar (USD) is on the back foot this morning after dovish comments made by the Federal Reserve triggered risk-on trade.

Chairman Jerome Powell confirmed that smaller interest rates are likely and could start as early as December. This possibility was already being priced in by investors but the comments still caused headwinds for USD.

However, in his speech Powell reiterated the importance of policy tightening, which limited the currency’s losses. Powell said:

‘It is likely that restoring price stability will require holding policy at a restrictive level for some time. History cautions strongly against prematurely loosening policy… We will stay the course until the job is done.’

Turning to Friday, key jobs data will likely drive the ‘Greenback’. The non-farm payrolls report and unemployment rate will likely be the main focus.  

The non-farm payrolls figure is expected to decrease from 261,000 to 200,000 in November. If this prints true, the slowdown in the jobs market could cause unease in investors as they worry about the country’s economic outlook.

November’s unemployment rate could offset these concerns somewhat. The rate is expected to remain unchanged at 3.7%. However, If the rate increases like in October this could see USD slump.

Pound’s (GBP) Potential Capped despite Upbeat Market Mood?

The Pound (GBP) is enjoying a boost this morning as the increasingly risk-sensitive currency is favoured amongst investors amid the current upbeat mood.

However, a lack of significant data likely means Sterling’s gains are being limited by a gloomy economic outlook. Water regulator Ofwat has reported that one –in five households are struggling to pay for water, in the latest troubling news about the UK’s worsening cost-of-living crisis.

Claire Forbes, who represented Ofwat in a statement said:

‘We know from previous research that many customers are struggling with utility bills. As today’s report underlines, this financial strain is persisting and, for many, worsening.’

Looking to Friday, a further lack of data could see the Pound continue to move in line with market sentiment. If the upbeat market mood sours, the riskier Pound could fall against the safe US Dollar.  

Meanwhile, any more downbeat domestic news could also put pressure on the Pound.

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