GBP/USD Exchange Rate to Trade Narrowly as Sterling Gains Capped?
The Pound US Dollar (GBP/USD) exchange rate is trading up today as improving market sentiment subdues the safe-haven US Dollar (USD) and the Pound (GBP) recovers some of yesterday’s losses. Gains for the Pound are likely to be capped, however, by ongoing criticism of the government’s borrowing plans.
At the time of writing, GBP/USD is trading at $1.0799, up 0.3% from today’s opening levels.
Pound (GBP) Uptrend to Weaken on Subdued Sterling Sentiment?
The Pound is enjoying modest tailwinds today as UK Chancellor Kwasi Kwarteng meets with bank bosses to discuss ways to support the economy. Also buoying the currency slightly is an improvement in risk sentiment.
Sterling went into freefall against its peers last Friday following the announcement of the Chancellor’s mini-budget, in which he proposed excessive government borrowing alongside tax cuts which would leave the country in significant debt.
Sterling losses persisted through yesterday’s session as no adjustments were made to the mini-budget and the Bank of England (BoE) failed to announce an emergency meeting. Former deputy governor Charlie Bean commented:
‘On this occasion if I had still been at the bank in my role as deputy governor I certainly would have been counselling the governor that I think this is one of those occasions where it might have made sense (to call a meeting).’
Good news from China has helped to buoy GBP today, as several of the country’s big fund managers and brokers have been asked to help stabilize the stock market, lifting market mood.
Looking ahead, however, gains are likely to be capped by ongoing uncertainty regarding the country’s economic outlook. Economists at JP Morgan argue that the economy can’t wait until 23 November, when Mr Kwarteng is due to deliver a medium-term fiscal plan.
US Dollar (USD) to Remain Downbeat on Risk-On Trading?
The US Dollar is tumbling against its peers today as an improvement in risk appetite saps support for the safe-haven currency.
Given recent market volatility, the ‘Greenback’ has attracted significant tailwinds over the past week and is now considered overbought, adding to USD pressures. Persistently hawkish rhetoric from the Federal Reserve is insufficient to deter a US Dollar selloff.
Today’s docket features durable goods data and a consumer confidence report, both of which could direct USD movement later in the session. New orders for US manufactured durable goods are expected to have fallen in August, potentially dampening ‘Greenback’ support further; on the other hand, consumer confidence in September looks to have improved.
Furthermore, likely-hawkish comments from the Fed’s Jerome Powell may encourage USD bulls this afternoon. A subsequent uptick in US bond yields would support the US currency, as traders contemplate the prospect of additional ‘aggressive’ interest rate hikes.