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Pound US Dollar Exchange Rate Rangebound Following BoE’s Dovish Outlook

Pound Sterling and US Dollar notes

Pound US Dollar Exchange Rate Muted in Response to BoE’s Dovish Tone  

The Pound US Dollar (GBP/USD) exchange rate is flat today, following a sharp drop on Thursday after the Bank of England’s (BoE) forward guidance proved more dovish than expected

At the time of writing, the GBP/USD exchange rate is trading at approximately $1.3136, with minimal movement from today’s opening levels.

Pound (GBP) Subdued Following BoE’s Dovish Forward Guidance

The Pound (GBP) is trending in a narrow range against the US Dollar (USD) today as the BoE’s dovish forward guidance continues to limit Sterling’s appeal.

On Thursday, the BoE hiked interest rates to 0.75%, up from 0.5%, as expected. This was the third consecutive hike as the bank seeks to ease surging inflation.

In January, UK inflation reached 5.5% – a thirty year high – and is predicted to increase to 7% by mid-April.

However, the BoE’s forward guidance delivered a dovish tone, dampening demand for Sterling.

8 out of 9 Monetary Policy Committee members voted to hike rates, with policymaker Sir Jon Culliffe voting to hold rates steady.

Not one member voted to hike rates further which is weighing on future hike bets and limiting the Pound’s upside potential.

Sam Cooper, Vice-President of Market Risk Solutions, said:

‘No surprise in the decision from the BoE to hike [yesterday], however the dissent from Cunliffe provides a dovish tilt and has prompted traders to revise bets on the pace of future rate hikes, immediately weighing on Sterling strength.’

In addition, geopolitical uncertainty continues to infuse volatility into the market, weighing on the risk-sensitive Pound.

An absence of UK economic data today will leave Sterling susceptible to market movements and other external factors.

US Dollar (USD) Edges Higher Amidst Ukraine Crisis

The US Dollar (USD) is trading slightly higher against the Pound (GBP) today in response to a lack of progress in the Russia-Ukraine peace talks.

Optimism surrounding negotiations between the two countries had kept a lid on the ‘Greenback’s potential this week. However, as progress has reportedly slowed down, it has created a softer risk tone and, in turn, headwinds for GBP/USD.

Later today, Joe Biden is scheduled to speak with China’s President Xi Jinping in hopes of steering China away from financially aiding Russia. The US has stated that it will impose sanctions against China if Beijing offers support to Russia’s war effort.

Although these sanctions are not yet known, it may further disturb the global markets and drive investors to the safe haven currency.

U.S. Secretary of State Antony Blinken said:

‘President Biden will be speaking to President Xi tomorrow and will make clear that China will bear responsibility for any actions it takes to support Russia’s aggression, and we will not hesitate to impose costs.’

The US Dollar may also be influenced throughout today as speeches from various Federal Reserve policymakers, including Michelle Bowman, are scheduled.

At present, the Fed is expected to hike rates up to 6 more times throughout the year. Should these speeches continue to deliver a broadly hawkish outlook, it may further bolster demand for the ‘Greenback’.

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