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Pound US Dollar Exchange Rate to Lift on Hawkish BoE Turn?

Stacks of US Dollar (USD) banknotes.

GBP/USD Exchange Rate Wavers as BoE Hints at Further Rate Hikes

The Pound US Dollar (GBP/USD) exchange rate is fluctuating this morning in the wake of Bank of England (BoE) policymaker Catherine Mann’s speech.

At time of writing the GBP/USD exchange rate is around $1.2027, relatively unchanged from this morning.

Pound (GBP) Supported by Hawkish BoE

The Pound is experiencing mixed success this morning as one of the more hawkish members of the BoE buoyed investors. Despite growing expectations of the BoE to pause rate hikes, or even cut them, Mann said that another rate rise is far more likely than a cut.

Speaking at the Lámfalussy Lectures Conference in Hungary, Mann said that inflation remains far too high and with elevated price pressures, the central bank should ‘stay the course’. If the BoE were to start cutting rates too soon, the impact would be much worse than too late. Mann added:

‘Uncertainty around turning points should not motivate a wait-and-see approach, as the consequences of under tightening far outweigh, in my opinion, the alternative. We need to stay the course, and in my view the next step in Bank Rate is still more likely to be another hike than a cut or hold.’

Looking ahead, GDP growth data is set to be released on Friday. With an expected stagnation in the Q4, following from a contraction in the previous quarter, the latest reading isn’t expected to inspire much confidence in investors. MoM GDP is expected to slip by 0.3%, following two months of growth.

US Dollar (USD) Holds onto Red-Hot Jobs Data Gains

Meanwhile, the US Dollar (USD) is still clinging onto gains from last week’s strong recovery. With the labour market surprising to the upside and remaining strong, Federal Reserve rate hike bets increased, buoying the ‘Greenback’.

Turning to this week, however, the US Dollar Index remains at fresh multi-week highs, but could be susceptible to an improving market mood. With moods lifted amidst peaking inflation, safe-haven flows could be stemmed, denting the US Dollar.

Looking ahead, and a quiet week of trading could see the ‘Greenback’ trade on market sentiment. With several speeches planned from Fed policymakers this week, a maintained hawkish stance could keep the US Dollar buoyed.

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