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Pound Sterling US Dollar (GBP/USD) Exchange Rate Benefits From Rising BoE Rate Hike Odds

Bank of England

Pound Sterling US Dollar (GBP/USD) Exchange Rate Upside Limited Amid Trade Worries

In spite of the strength of June’s UK PMIs the Pound Sterling to US Dollar (GBP/USD) exchange rate has struggled to hold onto any real momentum this week.

Rising global trade tensions have helped to buoy the US Dollar (USD), regardless of concerns over the negative impact that fresh tariffs could have on the US economy.

With market risk appetite heightened investors have piled into the safe-haven USD, with the Trump administration looking set to maintain its protectionist stance.

Anticipation for the release of the latest Federal Open Market Committee (FOMC) meeting minutes limited the upside potential of USD exchange rates, however.

As markets continue to speculate over the likelihood of a more aggressive pace of Federal Reserve monetary tightening demand for the US Dollar became a little muted.

Confident BoE Comments Boost GBP/USD Exchange Rate

Comments from Bank of England (BoE) Governor Mark Carney helped to shore up the Pound Sterling to US Dollar (GBP/USD) exchange rate on Thursday morning.

Markets took encouragement from an expression of confidence that the first quarter slowdown was due to weather disruption rather than other economic factors.

This appeared to add weight to expectations that the BoE will vote to raise interest rates again in August, offering a boost to Pound Sterling (GBP).

Even so, underlying support for GBP exchange rates remains fragile thanks to the persistent uncertainty surrounding Brexit.

Unless there are signs that the UK government is shifting towards a more unified position on the shape of the UK’s future relationship with the EU the Pound is likely to remain under pressure.

The latest cabinet meeting, however, is unlikely to yield a significant breakthrough and could stoke further political jitters.

As James Smith, Developed Markets Economist at ING, commented:

‘Some high-profile ministerial resignations (…) shouldn’t be ruled out over the next few weeks, although whether this would be enough to topple the Prime Minister is not so clear.’

Pound Sterling US Dollar (GBP/USD) Exchange Rate Vulnerable to Stronger US Wage Growth

June’s US non-farm payrolls report could put renewed downside pressure on the Pound Sterling to US Dollar (GBP/USD) exchange rate.

Evidence that the US labour market is continuing to tighten would give the Fed further incentive to tighten monetary policy at a faster pace.

An uptick in average hourly earnings could prove particularly positive, with stronger wage growth boding well for the health of the wider US economy.

While the headline change in non-farm payrolls figure is forecast to show a slight dip on the month this is unlikely to dent USD exchange rates.

As the US and China are due to impose fresh tariffs on one another on Friday, however, the impact of the jobs data could prove limited.

If the US continues to take a belligerent position on trade the Pound Sterling to US Dollar (GBP/USD) exchange rate could easily lose further traction, with safe-haven demand likely to support USD.