GBP/USD Exchange Rate Rises as Demand Slips for Safe-Haven ‘Greenback’
The Pound US Dollar exchange rate rose today ahead of the Federal Reserve’s latest monetary policy report. The pairing is currently fluctuating around $1.41.
The US Dollar (USD) failed to rise today despite underwhelming Chinese economic data dampening risk sentiment and restoring demand for safe-haven assets.
Instead, USD investors are focused on the US Federal Reserve today, which is expected to remain steadfast despite rising levels of US inflation.
Joshua Mahoney, senior market analyst at IG, explains what he expects from the Federal Reserve later today:
‘That topic of transitory inflation will be key as we look towards the FOMC meeting today, with the Fed looking unlikely to move the dials this time around.’
‘Instead, there is likely to be a focus on the latest dot plot and inflation projections, alongside questions around to what degree the Fed have discussed tapering in forthcoming meetings.’
As a result, the Pound US Dollar has dipped today, with the Federal Reserve’s Chairman, Jerome Powell, previously stating that it’s too early to begin ‘talking about tapering asset purchases’.
This wait-and-see attitude from the Fed has consequently limited demand for the ‘Greenback’ in today’s session.
Pound (GBP) Exchange Rate Edges Higher as UK Inflation Beats Forecasts
The Pound (GBP) rose today following the publication of May’s UK inflation gauge, which beat forecasts and exceeded the Bank of England’s (BoE) target at 2.1%.
Richard Partington, economics correspondent for the Guardian, commented on the data:
‘Many economists warn the bigger danger would be acting too early to prick an inflationary bubble that may dissipate of its own accord, threatening to derail the recovery. With a delay to the further easing of pandemic restrictions, risks to the economy still remain.’
As a result, GBP investors are concerned about the outlook for the UK’s economy now that the 21 June easing of lockdown measures has been delayed by four weeks.
Rising Covid-19 cases – due to the more transmissible Delta Covid variant – has also weighed on the Pound today. But this has not been enough to weaken the GBP/USD exchange rate.
While UK infection rates are rising, the hospitalisations remain relatively low, while the daily death rate is presently in single figures.
Pound investors are, however, confident that the UK vaccination efforts could limit both hospitalisations and deaths from the virus, improving the outlook for the nation’s economy in the months ahead.
Pound US Dollar Exchange Rate Forecast: US Jobs Data in Focus
US Dollar (USD) investors will eye tomorrow’s release of the latest US initial jobless claims in the three weeks up to June.
Any indications of falling joblessness in America could see the USD/GBP exchange rate begin to pick-up.
However, the US Dollar will remain largely influenced by global risk sentiment this week. So, any indications that the Chinese economy is struggling would boost demand for the safe-haven ‘Greenback’.
The Pound US Dollar exchange rate could remain subdued, however, if the Covid-19 situation in the UK takes a turn for the worse.