Pound US Dollar (GBP/USD) Exchange Rate Struggles amid Hawkish Fed Guidance
The Pound US Dollar (GBP/USD) exchange rate is dropping this morning, as investors pare back their bets on interest rate cuts from the Federal Reserve.
Additionally, anticipation continues to build for the Bank of England’s (BoE) imminent interest rate decision.
At the time of writing, GBP/USD is trading at around US$1.2629, a fall of roughly 0.4% from the morning’s opening rates.
BoE Decision to Bring Volatility to GBP?
So far today, the Pound (GBP) is seeing its movements limited as markets await the incoming interest rate decision from the Bank of England (BoE).
The BoE is expected by markets to keep interest rates unchanged, as inflation remains a persistent bugbear for UK households and businesses. Questions remain over the nature of the accompanying forward guidance.
As such, the Pound could see volatile trade over the rest of today’s session, depending on whether the BoE skews hawkish or dovish. Analysts anticipate the bank to signal that the tightening cycle is over, but to remain silent on the possibility of rate cuts in the near term.
If this occurs, GBP exchange rates could strengthen, providing the messaging is persuasive to investors.
Beyond this, the Pound may see muted trade due to a light data calendar on Friday. This is likely to push attention away from Sterling, and may prompt it to lose out against its peers.
Signs of Cooling Labour Market to Dent USD?
Thus far this morning, the US Dollar (USD) is managing to gain ground against its peers as investors digest the latest Federal Reserve interest rate decision.
While the Fed kept rates unchanged as expected, they successfully pushed back against rate cut expectations, strengthening the ‘Greenback’. However, a bullish market impulse is serving to cap USD’s gains against its rivals due to its safe-haven nature.
Looking ahead, the US Dollar may slip this afternoon following the publication of the latest ISM manufacturing PMI. Economists anticipate a slowdown in sector activity, which could weigh on USD exchange rates.
Tomorrow, the latest non farm payrolls data is due for publication, reflecting jobs created in January. Economists are expecting the private sector to have created 180,000 jobs, which may weaken the US Dollar if it prints in line with forecasts.
This would suggest that hiring in the US is cooling, which may prompt renewed bets on interest rate cuts from the Fed.
Elsewhere, risk appetite is likely to play a role in shaping the US Dollar through to the end of the week. As a safe-haven currency, bearish trading conditions could yield additional tailwinds and boost the ‘Greenback’ above riskier peers.