Pound US Dollar (GBP/USD) Exchange Rate Rangebound amid Elevated Fed Rate Hike Bets

March 8, 2023 - Written by John Cameron

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Rangebound amid Elevated Fed Rate Hike Bets

Pound US Dollar (GBP/USD) Exchange Rate Rangebound amid Elevated Fed Rate Hike Bets

The Pound US Dollar (GBP/USD) exchange rate traded flatly on Wednesday morning, as the US Dollar held onto it’s post-Powell gains.

At the time of writing, GBP/USD traded at around US$1.1843, showing little movement from Wednesday’s morning rates.

US Dollar (USD) Steadfast amid Elevated Rate Hike Bets

The US Dollar (USD) held its ground on Wednesday morning, following Tuesday’s substantial gains brought about by Federal Reserve Chair Jerome Powell.

On Tuesday, Fed Chair Powell began his testimony to the US congress and outlined the Fed’s current monetary process, and how the central bank was aiming to curtail inflation.

In his testimony, Powell stated: ‘The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated. If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.’

Following Powell’s hawkish forward guidance and suggestion of higher rate hikes with a faster rate of implementation, the ‘Greenback’ soared as USD investors bet on these words being implemented. On Wednesday, the US Dollar was able to hold onto these gains during the morning session.

However, USD appeared to trade quietly during the session, as investors awaited the continuation of Powell’s testimony, alongside a key data release. The latest set of JOLTs jobs data is scheduled for the afternoon, and could indicate a tight labour market, which would add to the impetus for higher rate hikes.

Pound (GBP) Directionless amid Lack of Data

The Pound (GBP) traded without much direction on Wednesday morning, as a lack of economic data left Sterling without a clear driver of movement.

With this in mind, evidence that the UK labour market is cooling may have weighed on the Pound. The Recruitment and Employment Confederation and KPMG released the results of their latest survey, and found that pay growth had slowed.

Furthermore, the survey showed that permanent job placements had fallen for the fifth consecutive month, and may have pointed towards signs that the UK’s labour market is loosening.

Victoria Scholar, the Head of Investment at interactive investor, commented on the survey results. She stated: ‘Many businesses are looking for ways to cut costs, particularly on labour given the tightness in the jobs market which makes hiring workers more expensive. Companies are relying more and more on temporary workers as a way to fulfil staffing needs without adding to their fixed labour costs.’

Elsewhere, dovish comments from Bank of England (BoE) policymaker Swati Dhingra may have weighed on Sterling. Dhinga called for interest rates to be held steady, and warns of overtightening the monetary policy.

Pound US Dollar (GBP/USD) Exchange Rate Forecast: UK GDP to boost Pound?

Looking ahead for the Pound (GBP), the core catalyst of movement is likely to come from Friday’s GDP data release. January’s data is forecast to show a monthly growth of 0.1% over December’s contraction of 0.5%.

If this prints as forecast, Sterling may strengthen on the signs that the UK’s economy has continued to sidestep contraction. However, this could be offset by the three month average data, which is forecast to print at 0% and could reflect stagnation in the British economy. If true, this may weigh on Sterling.

For the US Dollar (USD), Thursday brings the latest initial jobless claims data. The data reflects the latest jobless claims for the week ending March 4th, and is forecast to print at 195,000. If this prints accurate to forecast, it may show that the UK’s labour market remains tight and increase rate hike bets.

Friday brings the latest non farm payrolls data for February. While the data is forecast to print far below January’s reading at 203,000, it is likely to reaffirm views that the US’ labour market is hot. With this in mind, it will likely escalate rate hike bets even further, on top of hawkish rhetoric from Federal Reserve Chair Jerome Powell.

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TAGS: Pound Dollar Forecasts