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Pound US Dollar Exchange Rate Forecast: UK Economic Pessimism to Undermine GBP?

GBP/USD Exchange Rate Fluctuates amid Cheery Trade

The Pound US Dollar (GBP/USD) exchange rate was volatile today, as a lack of economic data left the currency pairing vulnerable to increasing risk appetite.

At the time of writing the GBP/USD exchange rate is trading at around $1.2480, up approximately 0.3% this morning’s opening rate.

Pound (GBP) Volatile amid Data Lull  

The Pound (GBP) gained some ground today amid a risk-on market mood. However, last week’s cooler-than-forecast inflation reports continued to cast a shadow over Bank of England (BoE) interest rate hike bets.  

This evening, BoE Governor, Andrew Bailey, is due to speak. In the wake of gradually falling UK inflation, investors may expect tepid commentary at best from Bailey, as speculations that the BoE has reached the peak of its tightening cycle persist.

On Wednesday, this year’s UK Autumn Statement is due for release. As the government’s formal economic update, any suggestion of a looming UK recession could spark GBP volatility. The statement may also detail any significant changes to tax and spending insights, which could impact GBP movement amid signs of economic uncertainty.

The latest PMIs are due out on Thursday, with forecast contractions in both services and manufacturing surveys throughout November. Consecutive declines in UK economic activity may see Sterling sentiment sour towards the end of the week, fuelling recent recession anxieties.

US Dollar (USD) Slumps amid Upbeat Mood

The US Dollar (USD) faced headwinds today as improving risk appetite dampened investor interest in the safe-haven currency.

With US data running thin on the ground, the ‘Greenback’ struggled to catch bids in the wake of last week’s lower-than-expected inflation data. Continually waning Federal Reserve rate hike bets left USD rudderless as cheery trade permeated global markets.

Looking ahead, the publication of minutes from the Fed funds interest rate decision meeting is due on Tuesday. Should the report convey that policymakers maintain their increasingly dovish stance towards interest rates, investors may take this as a sign that the Fed has reached the end of its tightening cycle, thereby denting USD.  

The release of the latest jobs data on Wednesday may offer USD some relief, amid a forecast decrease in new jobless claims for the week ending November 18. However, USD’s gains may be capped by a forecast decline in the latest durable goods data. Amid signs of economic slowing, Fed rate hike speculations face further pressure.

On Friday, the latest US PMIs are forecast to return promising data, with both services and manufacturing settling into growth territory. Should November’s PMIs print in line with expectations, the ‘Greenback’ may see a promising end to the week.

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