Pound US Dollar Exchange Rate News: GBP/USD Wavered on Hawkish FOMC Minutes

February 23, 2023 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Wavered on Hawkish FOMC Minutes

US Dollar (USD) Bolstered by Increased Rate Hike Bets

The US Dollar (USD) saw a considerable boost on Thursday after the release of the Federal Open Market Committee (FOMC) minutes from the last policy meeting.

Investors were keenly waiting for the minutes for any further indication towards the Federal Reserve’s monetary policy going forward. An initial surge in demand buoyed the US Dollar in the wake of the release of the minutes.

The minutes revealed that all policymakers agreed on further rate hikes, and a select few favoured a more aggressive 50bps rate increase. However, no further details on how these discussions would be dependent on further data. The benchmark 10-year US Treasury bond yield initially rebounded strongly.

USD investors remained upbeat and carried the sustained ‘Greenback’ momentum through the morning despite a modest improvement in market sentiment. The minutes also noted of a strong economy that grew amid a tight labour market:
‘Participants concurred that the Committee had made significant progress over the past year in moving toward a sufficiently restrictive stance of monetary policy.

‘Even so, participants agreed that, while there were signs that the cumulative effect of the Committee's tightening of the stance of monetary policy had begun to moderate inflationary pressures, inflation remained well above the Committee's longer-run goal of 2% and the labor market remained very tight.’

Pound (GBP) Undermined by Brexit Woes

Meanwhile, a lack of economic data left the Pound (GBP) exposed to domestic matters. Waning optimism surrounding the Northern Ireland protocol caped gains for a particularly hawkish speech from Bank of England (BoE) policymaker Catherine Mann.
Speaking at the Resolution Foundation in London, Mann emphasised the importance of bringing inflation down. Maintaining her typically hawkish tone, Mann suggested further tightening is necessary, adding:

‘Failing to do enough now risks the worst of both worlds – the higher inflation and lower activity of the ‘purple’ regime – as monetary policy will have to stay tighter for longer to ensure that inflation returns sustainably back to the 2% target.’

GBP/USD Exchange Rate Forecast: Core PCE Index to Bolster the US Dollar?

Looking ahead, the Pound US Dollar exchange rate could see further movement with several key data releases on Friday. The core PCE index will print for the US, the Fed’s preferred gauge of inflation. With an expected mild decline in inflation, elevated rate hike bets could keep the ‘Greenback’ buoyed.

Meanwhile, a further speech from the BoE on Friday could sap demand for Sterling. Silvana Tenreyro, a notoriously dovish policymaker, could pour cold water on any further rate hike expectations.

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TAGS: Pound Dollar Forecasts