ExchangeRates.org.uk - At the time of writing, GBP/USD is trading at $1.2705, having tumbled by more than 0.4% in the past 24 hours. The Pound was pressured yesterday, as a risk-off mood and BoE jitters capped gains for the currency. Despite the release of a better-than-expected construction PMI, Sterling sentiment remained downbeat. Ahead of the PMI release, data from the British Retail Consortium (BRC) showed that British retail activity increased in July; yet this too was insufficient to buoy the Pound. Markets were gripped by a bearish attitude amid the prospect of escalating violence in the Middle East. Iran pledged at the start of the week to retaliate following Israel’s apparent assassination of Hamas chief Ismail Haniyeh: as more countries get involved in the conflict between Israel and Palestine, the likelihood of an all-out war grows more likely. A lack of hawkish rhetoric from BoE officials further dampened GBP morale. The Bank of England cut interest rates last week by 25bps and markets are now speculating that policymakers could opt to loosen monetary policy twice more in 2024. This would paint the BoE in a dovish light against such central banks as the Reserve Bank of Australia (RBA), which maintains a hawkish tone. Governor Andrew Bailey did, however, strike an upbeat tone earlier in the week when he confirmed he would fulfil his 8-year term with the BoE.
Bailey remarked: ‘For some time, the cost of living for households and the cost of production for businesses have been the number one concern. Inflation has fallen a lot over the past 18 months, so I hope those concerns will begin to fade. It’s our job to make sure they do.’
US Dollar (USD) Enjoys Tentative Tailwinds
The US Dollar firmed against the Pound on Tuesday, though traded in a wide range against several peers as fears of a US recession failed to dissolve completely. Reassuring comments from President of the Federal Reserve Bank of Chicago, Austan Goolsbee, went some way to deter headwinds, yet markets refused to dismiss last Friday’s dismal nonfarm payrolls report, the memory of which capped gains.
Goolsbee told investors that the disappointing jobs report was not necessarily a recessionary sign, adding ‘we should not overreact to one month's data report because there's a margin of error on the data.’
Nevertheless, partial expectations of a 50bps interest rate cut from the Federal Reserve in September depressed USD sentiment, while concerns regarding economic stability sparked fear for investors in other currencies beside the ‘Greenback’. A risk-off mood prevailed, supporting the US Dollar in several exchange rates and capping losses. Also buoying the currency somewhat were lingering tailwinds following Monday’s ISM services PMI, which exceeded expectations, printing at 51.8. On the other hand, Tuesday’s trade balance release missed expectations, revealing that the US trade deficit reduced to $-73.1bn rather than the $-72.5bn forecast. Exports of US goods increased, but service exports decreased amid reduced travel demand.
GBP/USD Exchange Rate Forecast: US Recessionary Concerns to Drive Movement?
The Pound US Dollar exchange rate may trade today upon economists’ analysis of the economic situation in the US, as well as markets’ interpretation of the Bank of England’s monetary policy trajectory. A lack of significant data from both the UK and the US leaves GBP/USD to trade upon speculation. If additional voices from the Federal Reserve join Goolsbee in insisting that it’s too early to plan for a recession, the ‘Greenback’ could enjoy tailwinds; moreover, fears of a dovish move from the BoE could cap Sterling gains, depressing the exchange rate. Risk sentiment may also affect trade. Ongoing bearish sentiment is likely to support the US Dollar rather than the Pound, given USD’s safe-haven status. Elsewhere, unresolved geopolitical tensions threaten to supply additional risk-off headwinds.
This content was originally published on ExchangeRates.org.uk
