The Pound US Dollar (GBP/USD) exchange rate is firming today. Positive GDP data for the UK pushed the currency pair higher on Monday. Predictions that the UK will still see a sharp recession weighed on GBP/USD, however.
At time of writing the GBP/USD exchange rate was at around $1.2283, which was up roughly 0.2% from that morning’s opening figures.
The Pound (GBP) edged higher on Monday. Sterling found support from some positive data releases, although its gains were limited by an overall poor outlook for the UK economy.
Monday’s GDP figures for October were likely a primary motivator for Sterling’s gains on Monday. The data indicated a rebound in the country’s economic expansion after September’s slump.
The broader figures indicated the UK’s economy shrank in the three months to October, however. Experts were still largely in agreement that the UK was heading into a recession.
‘The positive start to the fourth quarter may not prevent recession with the growing squeeze on incomes likely to drive falls in GDP in November and December.’
Sterling was also pushed higher by bets on a 50bps interest rate from the Bank of England (BoE) this week. Markets are continuing to price in the move amid persistently high inflation.
US Dollar (USD) Exchange Rates Slip Ahead of Fed Interest Rate Decision
The US Dollar (USD) slipped against several of its peers on Monday. A retreat in global risk appetite limited major losses for the safe-haven ‘Greenback’, however.
A downturn in US Treasury bond yields saw USD slip. Bets on USD were also subdued ahead of the Federal Reserve’s interest rate decision later in the week.
Markets continued to price in a 50bps interest rate hike from the Fed on Wednesday. The bets on a smaller hike likely limited USD’s gains on Monday.
‘We think the Fed is not finished with its rate hikes and its new forecasts will indeed indicate a higher path for the Fed funds rate to 5%.’
GBP/USD Exchange Rate Forecast: Will BoE Signal Further Rate Hikes or Pull Back?
Looking to the week ahead for the Pound, a forecast uptick in October’s unemployment on Tuesday is unlikely to deter investors from betting on a tight labour market. If the figures print as expected then it could boost Sterling.
On Wednesday, a predicted slip in November’s inflation could dent Sterling. The cooler inflation could see markets pare back bets ahead of the BoE’s interest rate decision.
With the BoE’s 50bps interest rate hike largely priced in by markets, investors will be awaiting the central bank’s forward guidance to provide catalyst for the Pound’s movements. A more cautious stance if the face of a recession could weigh on GBP.
On Friday, downbeat data for the UK’s private sectors could also see the currency slip. November’s retail sales are forecast slow in November, whilst December’s PMI for the services sector is expected to print another contraction.
For the US Dollar, a slip in November’s inflation on Tuesday could see a pullback in bets on the currency ahead of the Fed’s interest rate decision. Some investors have recently been pricing in a more cautious stance from the Fed and the slip in inflation could confirm this.
The Fed’s latest interest rate decision on Wednesday is likely to prompt significant movement in USD. Fed policymakers including Chair Jerome Powell have recently signalled their desire for further interest rate hikes. If the central bank’s forward guidance remains hawkish then it could boost USD.
On the other hand, any gains for the US Dollar could be tempered if retail sales figures slump on Friday as forecast.
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