Pound US Dollar Exchange Rate News: GBP/USD Softened on as Markets Brace for Further Fed Rate Hikes

April 17, 2023 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Softened on as Markets Brace for Further Fed Rate Hikes

US Dollar (USD) Buoyed by Renewed Rate Hike Bets

The US Dollar (USD) found traction once again despite a slew of downbeat economic data. A persistently hawkish Federal Reserve helped restore confidence in the US Dollar, as expectations are growing of further tightening at the next policy meeting.

Combined with Fed Chair Jerome Powell saying that the Fed can’t see a possibility of rate cuts this year, expectations are growing. Economists at BBH commented on the situation that Fed’s tightening expectations are picking up:

‘WIRP suggests nearly 90% odds of a 25 bp hike at the May 2-3 meeting, up from 70% at the start of last week and 50% at the start of the week before that. Small odds of another 25 bp hike in June has crept back into the market.
‘If a second hike gets more priced in while a rate cut gets more priced out, this should help the dollar get more traction.’

Pound (GBP) Supported by Renewed Optimism

The Pound (GBP), despite a lack of economic data, found modest strength against some of its peers on Monday as the economic outlook for the UK might not be as bleak as earlier feared.

Deloitte revealed a marked improvement in optimism across businesses in the UK, as their quarterly poll of CFOs recorded the sharpest upturn in confidence since the rollout of the Covid vaccine in late 2020. With energy prices finally falling, supply chain issues waning, and Brexit woes subsiding in the wake of the Windsor Framework, businesses are more upbeat over the coming year. Ian Stewart, Chief Economist at Deloitte, said of the significant improvement in moods:

‘The economic unpredictability that marked the beginning of 2023 has started to clear, with CFOs reporting the largest decline in perceptions of uncertainty to date. Business confidence has rebounded, helped by a decrease in energy prices, an easing of Brexit concerns and an improving inflation backdrop.’

However, preventing any further gains is the growing expectation that the Bank of England (BoE) could be approaching a pause in their monetary policy. With more than half of Bloomberg economists now pencilling in a pause, Sterling could come under increased pressure. Robert Wood, Chief Economist at the Bank of America, commented:

‘It’s pretty clear that labour market tightness is fading. Certainly, that’s good news for the Bank of England, and it does make the May decision a really close call.’

GBP/USD Exchange Rate Forecast: Easing Labour Market to Weigh on the Pound?

Looking ahead, the Pound US Dollar exchange rate could see further movement with the release of the latest employment data for the UK. The unemployment rate is expected to remain unchanged, however, employment growth in the three months to February is only expected to have risen by 5k. A cooling labour market could give the BoE room to pause the interest rate, which could see Sterling slide.

Meanwhile, the US Dollar could see further gains if Fed policymaker Michelle Bowman maintains a hawkish tone in a speech on Tuesday. Any further hints at the Fed continuing their aggressive tightening cycle could bolster the ‘Greenback’.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Dollar Forecasts