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Pound US Dollar (GBP/USD) Exchange Rate Rangebound Despite Lingering Risk Aversion

September 13, 2021 - Written by John Cameron

Pound-to-US Dollar-rate-

GBP/USD Exchange Rate Trades Sideways on Lack of Data

The Pound US Dollar (GBP/USD) exchange rate traded in a narrow range today as both currencies lacked significant data. Movement in the Pound (GBP) was instead stimulated by risk sentiment and Covid developments, while the US Dollar (USD) found support on Fed tapering expectations.

At the time of writing, GBP/USD is trading at $1.3844, virtually unchanged from today’s opening levels.

Pound (GBP) Battles Covid Worries, Risk-Off Mood

The Pound faced various headwinds today, prompting it to fall against several of its peers.

Covid uncertainty dominated GBP downside, despite Prime Minister Boris Johnson giving booster jabs the go-ahead. Mixed data on whether 12-15 year-olds should be vaccinated caused an atmosphere of confusion; although the UK’s chief medical officers have since confirmed that teens will be offered the vaccine.

Ambiguity over the prospect of a winter lockdown also dented Sterling sentiment, as the PM deflected questions and UK officials gave only vague answers. According to the UK’s Work and Pensions Secretary, Therese Coffey, lockdowns, mask wearing, social distancing and working from home remain options on the table.

A risk-off mood was felt through parts of the session, as investors digested China’s latest regulatory measures to curb private tech firms. The country’s latest moves include a crackdown on the app ‘Alipay’, which had already been forced to restructure its loans business.

The Pound was saved from further losses, however, by encouraging remarks from the Bank of England (BoE)'s executive director for markets, Andrew Houser. Houser remarked that unwinding QE will become an integral part of future tightening strategies, and that the BoE expects to adopt a market-led approach.

US Dollar (USD) Supported by Fed Comments, Safe-Haven Status

The US Dollar (USD) gained support against several of its peers today as an alternately risk-off mood supported the safe-haven currency. Concerns over China’s ongoing ‘techlash’ drew investors away from riskier assets, to USD’s benefit.

Expectations for an imminent taper announcement from the Federal Reserve also lent tailwinds to the ‘Greenback’. Philadelphia’s Fed President Patrick Harker told the press:

‘I am supportive of moving toward a tapering process sooner rather than later… I would hope sometime this year we would be able to start the tapering process.’

Harker’s comments echoed those of Cleveland’s Fed President Loretta Mester, who asserted last Friday that she’d like to begin tapering asset purchases sometime this year.

‘[The] Delta variant is a risk to the outlook but not necessarily going to weigh heavily on economic activity,’ said Ms Mester; ‘[I am] expecting employment to continue to rise over the rest of the year.’

While the two statements can’t be considered wholly representative of the central bank’s stance, Harker also admitted to forecasting rate hikes for late 2022 or early 2023, bolstering USD’s trading outlook.

GBP/USD Exchange Rate Forecast: UK Employment Data to Trump US Inflation?

Into tomorrow’s session, UK employment data is expected to report a decreased rate of unemployment on last month, while average earnings will likely continue to rise. If the data prints as expected, the Pound may climb against the US Dollar.

In the afternoon, the US inflation rate is expected to have lowered very slightly since July, potentially causing headwinds: the UK’s inflation data on Wednesday is expected to print with gains of 0.9%.

Risk sentiment is also likely to influence GBP/USD trading direction into tomorrow and for the remainder of the week, if Covid cases rise or political concerns are aggravated.

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