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Pound US dollar (GBP/USD) exchange rate forecast: dovish BoE to sink Sterling?


The Pound US Dollar (GBP/USD) exchange rate is edging lower this morning as investors await the Bank of England’s (BoE) latest monetary policy update.

At the time of writing the GBP/USD exchange rate is trading at around $1.2491, down approximately 0.2% from this morning’s opening rate.

Pound (GBP) stumbles ahead of BoE interest rate decision

The pound (GBP) is facing headwinds this morning amid a lack of fresh macroeconomic releases in the UK.

Looking forwards, GBP may encounter volatile trading conditions heading into the latter half of the week amid some market moving data due out.

The Bank of England (BoE) is set to deliver its latest interest rate decision on Thursday afternoon, as investors await with bated breath in the meantime. The central bank is widely expected to enact a sixth consecutive interest rate hold tomorrow, though markets will be eager to analyse the central bank’s forward guidance. BoE rate cut bets are currently split between those expecting a June rate cut, and those anticipating that monetary loosening may not occur until at least September.

As such, investors and economists alike will be focussed on any hawkish signals from BoE rate-setters, in order to ascertain the potential timings of the central bank’s unwinding cycle.

Following this, the UK’s latest GDP reports are due to print on Friday morning. Economists forecast 0.4% growth in the first quarter of 2024, which may serve to lift GBP exchange rates whilst simultaneously indicating economic recovery in the UK following last year’s mild recession. In turn, GBP could strengthen, as a slight return to economic growth soothes Britain’s recession woes.

US dollar (USD) subdued amid data lull

The US dollar (USD) trading without a clear trajectory this morning following an influx of Federal Reserve commentary in recent days.

The ‘greenback’ may continue to be driven primarily by policymaker rhetoric in the coming days amid an ongoing absence of high impact US releases, leaving USD vulnerable to interest rate cut bet volatility.

Fed Vice Chair Philip Jefferson, Fed Susan M Collins, and Fed Lisa Cook are due to speak later today. Following recent policymaker dissent within the Fed, any further signs of a fragmented Fed consensus could undermine USD’s recent strength, leaving the ‘greenback’ to face headwinds this afternoon.

On Thursday, the latest American initial jobless claims are due for release. Forecast to show a slight uptick in the number of US citizens claiming unemployment benefits, ongoing signs of a loosening labour market may place the US employment sector under scrutiny once again, hampering USD exchange rates.

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