Cautious Investor Sentiment Holds Pound US Dollar (GBP/USD) Exchange Rate Steady

October 9, 2024 - Written by David Woodsmith

STORY LINK Cautious Investor Sentiment Holds Pound US Dollar (GBP/USD) Exchange Rate Steady

The Pound to US Dollar (GBP/USD) exchange rate traded in a narrow range on Tuesday morning, hovering just above the three-week low touched on Monday.

At the time of writing, GBP/USD was trading around $1.3100, showing little movement from Tuesday’s opening levels.

The US Dollar (USD) found some support on Tuesday, benefiting from a risk-averse shift in market sentiment during Asian trading hours.

The shift in risk appetite emerged amid disappointment in China, where markets fell after Beijing showed reluctance to introduce further stimulus, despite earlier expectations for additional fiscal support to follow the measures unveiled a couple of weeks ago.

Investors had anticipated further action to help shore up China’s flagging economy, but the lack of such measures, combined with ongoing geopolitical tensions in the Middle East, prompted a flight to safer assets like the US Dollar.

The Pound (GBP) remained largely subdued on Tuesday as concerns about the upcoming Autumn Budget weighed on Sterling.

Traders are increasingly worried that the UK’s rising borrowing costs may restrict Chancellor Rachel Reeves’ ability to fund key infrastructure projects and other initiatives aimed at boosting economic growth.

This is stoking bets for higher taxes and reduced public spending as the government seeks to meet its fiscal rules, although there is also speculation that Reeves may loosen these rules to create more fiscal flexibility.

Looking ahead, the Pound to US Dollar exchange rate could experience some movement on Wednesday with the release of the minutes from the Federal Reserve’s September meeting.

The Fed delivered a larger 50bps rate cut last month, and USD investors will be looking to confirm whether the bumper cut was a one off or the start of an aggressive new cutting cycle from the central bank.

If the minutes suggest that the Federal Open Market Committee is in favour of maintaining a more aggressive approach to rate cuts, it could weigh on the US Dollar.

Meanwhile, with no major UK data releases, the Pound is likely to be influenced by broader market risk sentiment. If investors remain cautious, Sterling could face further pressure.

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TAGS: Pound Dollar Forecasts