Pound US Dollar (GBP/USD) Exchange Rate Rangebound amid Lack of Data

March 29, 2023 - Written by John Cameron

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Rangebound amid Lack of Data

Pound US Dollar (GBP/USD) Exchange Rate Rangebound amid Lack of Data

The Pound US Dollar (GBP/USD) exchange rate lacked direction on Wednesday, as a lack of data left GBP muted against most peers.

At the time of writing, GBP/USD traded at around US$1.2341, showing little movement from Wednesday’s opening rates.

Pound (GBP) Muted amid Thin Data Calendar

The Pound (GBP) wavered during Wednesday’s session, as a thin data calendar left Sterling exposed to external factors and risk appetite.

While calm has returned to the European and American banking sectors, the Pound appeared to be unable to capitalise on the upbeat market mood.

However, reassurances from the Bank of England (BoE) may have underpinned the Pound, allowing it to carry over momentum from Tuesday’s trade. With BoE Governor Andrew Bailey stating that UK banks remained secure, the fears of further routs receded.

Furthermore, persistent bets on a final interest rate hike from the Bank of England could be providing further cushioning. On Tuesday, the British Retail Consortium (BRC) released a report that showed food inflation had skyrocketed, and that shop price inflation had yet to reach it’s peak.

Because of this, there may be further room for tightening from the BoE as they attempt to drive inflation down from it’s current double digit perch.

Although, investors remain cautious over further tightening due to the possibility of a credit crunch. AXA’s Chief Economist Gilles Moec stated: ‘There is a sizeable risk that the ongoing banking trouble triggers a 'sudden stop' in lending which would then send the economy into the sort of recession which would go beyond what is strictly needed to tame inflation.’

US Dollar (USD) Wavers amid Lack of Fed Clarity

The US Dollar (USD) lacked for support on Wednesday, as a lack of clarity from the Federal Reserve keeps USD investors on edge.

While markets did appear to calm, preventing the ‘Greenback’ from losing out to riskier assets, the lack of forward guidance in regards to further interest rate hikes appeared to prevent USD from gaining much support.

While interest rate cuts have begun to be considered, analysts believe this to be the lesser factor in prompting relative weakness in the US Dollar.

Francesco Pesole, FX Strategist at ING, commented: ‘It’s the stance of the Fed and its unclear communication (especially given the contrast with the European counterparts) that leaves the dollar vulnerable in a stable risk environment and not necessarily the magnitude of expected rate cuts.’

However, recent turmoil in the banking sectors has prompted anxiety over a global recession. Global growth is likely to be lesser in the coming months.

As such, the safe haven ‘Greenback’ may be being cushioned by these anxieties, as it provides a safer investment option against other assets.

Pound US Dollar (GBP/USD) Exchange Rate Forecast: Sticky Core PCE Data to Boost USD?

Looking ahead for the US Dollar (USD), Friday brings the release of February’s core PCE price index data. As the Federal Reserve’s preferred gauge of inflation, the forecast of a hold at 4.7% could boost rate hike bets, as inflation remains stickier than hoped.

Furthermore, a series of data releases on Thursday could provide direction. Initial jobless claims for the week ending March 25th could provide strength for the ‘Greenback’, as they are expected to stay within the usual boundaries seen. As such, the data may reiterate tightness in the US labour market.

As such, it could prompt an increase in rate hike bets amongst USD investors, as room for the Federal Reserve to continue tightening becomes more evident.

Elsewhere, risk appetite across markets may hold sway over the ‘Greenback’. With the market mood continuing to be upbeat, if this carries through the rest of the week USD may struggle for support as riskier assets are favoured.

For the Pound (GBP), a lack of significant data releases could leave Sterling vulnerable to external factors. Due to the currency’s increasing risk sensitive nature, a shift in risk appetite may weigh on GBP.

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TAGS: Pound Dollar Forecasts