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GBP/USD Exchange Rate to Retest Two-Year Low on Hawkish Fed Summit?

GBP/USD Exchange Rate Stumbles in Risk-Off Trade

The Pound US Dollar (GBP/USD) exchange rate is trading on the backfoot today as a prevailing risk-off mood bolsters demand for the safe-haven ‘Greenback’.

At the time of writing the GBP/USD exchange rate is trading at around $1.1774. Down roughly 0.4% from this morning’s opening rate.

US Dollar (USD) to Rally on Hawkish Fed?

The US Dollar (USD) looks poised to extend its recent bullish run in the latter half of this week, amid hawkish expectations for the Federal Reserve’s annual Jackson Hole Symposium.

The Symposium is traditionally an opportunity for the Fed to outline its key policy plans for the next year.

A key focus for USD investors this year will be for how long the Fed will be willing to key its foot on the accelerator and whether it will let up next year to get the US economy more breathing room.

Market observers are fairly confident that in his key speech on Friday, Fed Chair Jerome Powell will reiterate the bank’s commitment to bringing inflation to heel, likely bolstering the US Dollar.

Michael Brown, head of market intelligence at Caxton in London, suggests:

‘Market participants remain squarely focused on Friday’s Jackson Hole Symposium as this week’s main event. With a hawkish Chair Powell likely on Friday, I’d expect the [US Dollar] to resume its recent rally before too long.’

Analysts suggest Powell will signal the Fed will maintain its current pace of interest rate hikes, while also playing down speculation that it may cut rates next year.

On the other hand, if Powell strikes a more cautious than expected then the US Dollar could weaken.

Pound (GBP) to be Pressured by Energy Cap Announcement?

At the same time, the Pound (GBP) faces headwinds ahead of the announcement of the UK’s new energy price cap.

Ofgem will announce the new cap on Friday, ahead of the new prices coming into force from the start of October.

Analysts forecast the cap could rise above £3,500 up from £1,971. This would see bills for the average household rise to £300.

GBP investors fear a sharp increase in energy prices could severely undermine consumer spending as households are forced to spend a larger portion of their income on energy.

Energy bosses have reportedly proposed a £100bn plan to freeze energy bills for two years. It’s unclear how likely the next government is to consider this proposal, but news of the plan appeared to bring some cheer to the Pound yesterday.

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