Pound US Dollar Exchange Rate News: GBP/USD Wavered amid Bolstered Fed Rate Hike Bets

January 19, 2023 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Wavered amid Bolstered Fed Rate Hike Bets

US Dollar (USD) Propped up by Hawkish Fed Rhetoric

The US Dollar (USD) traded with mixed success on Thursday amid a cautious market mood and further hawkish comments from the Federal Reserve. Treasury bond yields looked to slide, which could have kept the ‘Greenback’ on a tight leash.

Lending some modest support, however, is Cleveland Fed President Loretta Mester adding to the speculation that the central bank is not ready to slow its aggressive rate cycle. Mester signalled that the Fed will continue its path despite slowing inflation and economic activity. The comments came at a time when most of her fellow policymakers expect the cash rate to climb to 5.00%-5.25%.

Elsewhere, St Louis Fed President James Bullard also announced his support for further rate hikes to bring inflation down. Speaking with the Wall Street Journal on Wednesday, the bullish Bullard called for the policy rate to get above 5% as quick as possible.

Pound (GBP) Undermined by Persistent Domestic Woes

Meanwhile, the Pound (GBP) struggled for demand on Thursday amidst a lack of economic data. After the rallying in the wake of increased rate hike bets from the Bank of England (BoE), Sterling ran out of steam as domestic headwinds returned.

A government minister has admitted that the rail strikes have cost the UK economy in excess of £1bn, and if the government had settled, the cost would have been substantially lower. Huw Merriman, rail minister, said:

‘If you look at it in that particular lens, then absolutely, it’s actually ended up costing more than would have been the case if it was just settled.’

Industrial action remains at the forefront of investors’ concerns, with nurses across the UK striking over pay and work condition disputes. Ambulance drivers also announced plans for four further strikes across February and March.

Providing some modest support, and preventing further losses, are elevated rate hike bets from the BoE. With inflation remaining far above the target rate of 2%, and strong wage growth, the central bank could be left with no choice but to continue its path. A 50bps rate hike could be on the table at the next policy meeting, buoying GBP investors.

GBP/USD Exchange Rate Forecast: UK Retail Sales to Spur the Pound?

Looking ahead, the Pound US Dollar exchange rate could see further movement if the UK retail sales data prints as forecast. GBP investors are hoping for a rebound from November’s poor showing, after retail sales slumped 0.4%. A boost from a rare winter world cup could be one of the main drivers of a welcome 0.5% expected climb.

Meanwhile, the US Dollar could see some further support with speeches from several Fed policymakers. A maintained position of hawkish rhetoric could provide the ‘Greenback’ with further tailwinds on elevated rate hike bets.

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TAGS: Pound Dollar Forecasts