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Pound US Dollar (GBP/USD) Exchange Rate to Climb Higher on Hawkish BoE?

Pound US Dollar

Pound US Dollar Exchange Rate to Extend Gains on BoE Commentary?

The Pound US Dollar (GBP/USD) exchange rate has rocketed this morning as a risk-on mood supports Sterling while weighing upon the safe-haven ‘Greenback’. Investors swept aside yesterday evening’s Federal Reserve outcome into today’s session, taking direction instead from an improved outlook for the Chinese economy.

At the time of writing, GBP/USD is trading at $1.3671, up 0.4% from today’s opening levels.

Pound (GBP) to Firm on Policymakers’ Outlook?

The Pound (GBP) is likely to seek direction today based upon the Bank of England (BoE)’s interest rate decision. Economists are torn over the likelihood of a hawkish outcome, but the consensus is that policy will probably remain the same.

According to TDS Bank, ‘the [Monetary Policy Committee] is almost certain to leave all policy on hold’; while SocGen reports that ‘the existing forward guidance, based on the elimination of spare capacity, is likely to be repeated.’

With total employment subdued and high inflation attributed to supply bottlenecks and low levels of inventories, there is certainly scope for an underwhelming outcome. Other analysts, however, are more hopeful.

Analysts at Danske Bank remark that ‘risks are tilted towards a more hawkish BoE’ as high inflation and payroll employment above pre-Covid levels encourage optimism. Rabobank acknowledges that ‘calls for a relatively early BoE rate hike are growing louder’, while BMO suggests that ‘the tone of the meeting will match the hawkish one assumed at the last gathering.’

If a hawkish commentary prevails, investors will likely flock to support the Pound, lifting Sterling against its peers through this afternoon’s session. Conversely, a dovish tone may depress GBP sentiment, skewing markets in favour of risk-off trading.

US Dollar (USD) to Find Support on PMI Data?

The US Dollar (USD) traded up briefly against its peers yesterday as the Federal Reserve acknowledged that if progress continues broadly as expected, a moderation in the pace of asset purchases may soon be warranted.

Gains were soon relinquished, however, as a risk-on market mood this morning suppressed USD trading sentiment.

The ‘Greenback’ fell in line with Treasury yields as the outlook improved for China’s economy: the People’s Bank of China (PBOC) have pumped $17bn into the system as failing real-estate company Evergrande promise to pay off some of their debt.

Later today, US PMI data is expected to reveal a slight fall in manufacturing on continuing capacity constraints and material shortages. USD downside may be exacerbated by an accompanying dip in services data, as new order growth slows.