Pound US Dollar (GBP/USD) Exchange Rate Rangebound Despite Persistent BoE Rate Hike Bets

January 30, 2023 - Written by John Cameron

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Rangebound Despite Persistent BoE Rate Hike Bets

Pound US Dollar (GBP/USD) Exchange Rate Trades Narrowly as Market Mood Turns Cautious

The Pound US Dollar (GBP/USD) exchange rate traded within a narrow range on Monday. Bank of England (BoE) rate hike bets lent support to the pairing.

On the other hand, a cautious market mood kept GBP/USD trending sideways.

At time of writing the GBP/USD exchange rate was at around $1.2385, which was virtually unchanged from that morning’s opening figures.

Pound (GBP) Falls Despite 50bps BoE Rate Hike Bets

The Pound (GBP) slipped on Monday. A retreat in risk appetite weighed on Sterling. Bets on the currency were also subdued ahead of the BoE’s interest rate decision later this week.

GBP found some support from Bank of England rate hike bets, however. Markets have been pricing in a 50bps interest rate from the central bank amid a persistently tight labour market.

Analysts are forecasting that the BoE could start to slow its pace of policy tightening, however. This speculation weighed on the Pound on Monday.

Political turmoil in the UK government also dented confidence in GBP on Monday. Conservative party chair Nadhim Zahawi was sacked on Sunday after he was found guilty of serious breaches of the ministerial code.

US Dollar (USD) Bolstered by Risk-Off Mood

The US Dollar (USD) firmed on Monday. A cautious market mood lent support to the safe-haven ‘Greenback’.

USD’s gains were capped by expectations of a slowdown from the Federal Reserve, however. Markets are betting on a 25bps interest rate hike from the Fed following a fall in inflation last week.

James Knightley, Padhraic Garvey, and Chris Turner said:

‘While inflation is still well above target and unemployment is at a cycle low, there are signs that the economy is responding to tighter monetary policy and the Fed will be cognisant of fears that hiking rates too hard and fast risks toppling the economy into recession.’

GBP/USD Exchange Rate Forecast: Will Potential BoE Rate Hike Slowdown Pull GBP Lower?

Looking to the week ahead for the Pound, markets will be eagerly awaiting the BoE’s interest rate decision on Thursday. If the BoE hikes rates by 50bps as forecast then it could have a positive effect on Sterling.

Signals from the BoE of a policy slowdown policy could prompt further movement in GBP. A speech from BoE chief economist Huw Pill on Friday could provide further impetus for the Pound.

The final reading of the latest UK PMI figures could also pull GBP lower if they print as forecast. Both Wednesday’s figures for the manufacturing sector and Friday’s services PMI are set to confirm a January contraction.

For the US Dollar, a forecast uptick in January’s consumer confidence could bolster USD. January’s reading of the index is expected to indicate a rise to 109.

Employment data on Wednesday ahead of the Fed’s interest rate decision could bolster the currency and bets on further rate hikes. December’s JOLTs job openings are expected to remain close to the previous month’s reading, pointing to a tight labour market.

Also on Wednesday, an expected contraction in the US manufacturing sector could cap gains amid fears of a potential recession.

Investors will be keenly awaiting the Fed’s interest rate decision on Wednesday. Expectations for the US central bank are mixed ahead of the meeting. Forecasts are pointing towards a slower 25bps rate hike which could weigh on the US Dollar.

Additionally, if the Fed signals that it will continue to slow its pace of policy tightening then USD could see deeper losses.


Further employment data on Friday could point to a cooler labour market if prints as forecast. January’s unemployment rate is expected to climb, with hiring set to slow further. The data could pull USD lower.

Also on Friday, a forecast return to growth for the US’ services sector could limit any losses for the US Dollar. January’s PMI is expected to point to a return to growth for the sector.

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TAGS: Pound Dollar Forecasts