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GBP/USD Exchange Rate Trades Mixed
The Pound US Dollar (GBP/USD) exchange rate trended broadly sideways yesterday as a lack of significant trading stimuli left both currencies exposed to external factors. The US Dollar (USD) enjoyed marginal tailwinds, while the Pound (GBP) was left directionless. At the time of writing, GBP/USD is trading at $1.2679, having weakened slightly in the past 24 hours.
Pound (GBP) Makes Marginal Gains on Bullish Trading Conditions
The Pound trended higher against several peers on Tuesday, despite weakening against others. Speculation over the Bank of England (BoE)’s interest rate cutting schedule continued to cap significant Sterling tailwinds, although GBP traders did not appear overly concerned by the uncertainty of the bank’s actions ahead. Market expectations recently shifted as BoE policymakers indicated that they are closer to rolling back their restrictive rate stance: traders now anticipate the first interest rate cut in August as opposed to September or November. Yet forecasts of two rate cuts from the Federal Reserve this year relieve pressure on the BoE to adopt an overtly hawkish stance. A relatively bullish mood also lent support to the Pound yesterday; analysts remarked upon Sterling’s robust recovery following a mixed start to the week.
UOB Group strategists commented: ‘Yesterday, we were of the view that GBP could dip towards 1.2600 before the risk of a rebound increases. However, after dipping to a low of 1.2633, GBP rebounded strongly, reaching a high of 1.2698.’
US Dollar (USD) Boosted as House Prices Continue to Rise
The US Dollar firmed against a basket of currencies yesterday, boosted by higher-than-forecast house price inflation. The S&P/Case-Shiller Home Price index printed at 1.4% for the month of April, rather than 1.1% as expected. Additional data echoed the trend: the Federal Housing Finance Agency revealed that the average prices of single-family houses with mortgages guaranteed by Fannie Mae and Freddie Mac increased 0.2% in May. The release tallied with hawkish comments from Federal Reserve policymaker Michelle Bowman, who remarked:
‘Inflation in the U.S. remains elevated, and I still see a number of upside inflation risks that affect my outlook... We are still not yet at the point where it is appropriate to raise the policy rate.’
Tailwinds may have been capped later in the session, as consumer confidence eased from 101.3 to 100.4 in June; however, the reading remained higher than forecast, despite printing below May’s result. Also boosting USD may have been political jitters in major economies outside the US, which divert support toward safe-haven assets.
FX strategists at TD securities noted: ‘Any surprises [are] likely to benefit the USD. Risk and equity trading baskets have performed well for most of this year but again those are two themes that work for the USD.’
GBP/USD Exchange Rate Forecast: Quiet Conditions to Limit Movement?
Into today, the Pound US Dollar exchange rate could trade upon US Dollar dynamics as well as the UK’s latest distributive trades release. A quiet session for both currencies, strength in the ‘Greenback’ may emerge if risk aversion intensifies, or in the case of additional hawkish comments from the Federal Reserve. The UK’s monthly retail sales balance from the Confederation of British Industry (CBI) is unlikely to have any significant influence on Pound performance, but could inspire minor headwinds if a fall in spending is reported.
This content was originally published on ExchangeRates.org.uk
