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Pound US Dollar Exchange Rate News: GBP/USD Drops on Hawkish Fed Outlook

January 27, 2022 - Written by John Cameron

GBP/USD Stumbles amid Hawkish Fed Comments



The Pound US (GBP/USD) exchange rate is facing headwinds this morning following hawkish comments from the Federal Reserve following its first interest rate decision of the year.

At the time of writing, the GBP/USD exchange rate is trading at approximately $1.3428, down roughly 0.3% from today’s opening levels.


US Dollar (USD) Climbs Following Hawkish Hints from Fed



The US Dollar (USD) is gaining against the Pound (GBP) at the beginning of today’s session in response to the hawkish comments made from Fed Chair Jerome Powell.

Speaking in the wake of the Fed’s latest interest rate decision, in which the US central bank opted to leave rates on hold, Powell signalled that the Fed may tighten monetary policy more aggressively than previously indicated, with the first of its hikes likely to take place in March. Powell suggested there is ‘quite a bit of room to raise interest rates without threatening the [labour] market’.

Powell continued:

‘As we work our way through this, meeting by meeting, we are aware that this a very different expansion...Those differences are likely to be reflected in the policy that we implement.

‘We will begin to address them as we move into the March meeting and meetings after that.’

This has weighed heavily on the Asian stocks, which is now suffering a 15-month low, causing the Fed to go from ‘the market’s best friend, to a possible enemy’, according to Kyle Rodda, analyst at the online trading platform IG in Sydney.

As the Fed takes a tougher approach, other Central Banks may also feel the pressure to follow suit.

This is causing a risk-off market sentiment, driving investors to the safe haven currency.


Pound (GBP) Loses Ground as UK Political Concern Persists



Meanwhile, the Pound (GBP) is falling against the US Dollar (USD) as the UK political landscape remains unsettled as the country awaits the publication of Sue Gray’s report.

The report is expected to detail the actions of Boris Johnson, the UK Prime Minister, during the May 2020 lockdown who is currently being accused of breaking the laws at the time.

The future of Johnson’s position remains uncertain, with the opposition and many Conservative MP’s calling for him to resign whilst the report is still yet to be published.

Although Johnson has thus far refused to give into these demands and has repeatedly requested for patience, GBP investors are cautious of UK politics.

Meanwhile, the Met Police have launched an investigation into the ‘Partygate’ scandal which is causing additional pressure on the Pound’s appeal.

Former Metropolitan Police chief superintendent Dal Babu, said:

‘Sue Gray's report has no standing. She's a very eminent person, very able, but, in essence, it's just a report.

'It is not a judge-led inquiry, she doesn't have any specific powers to call people to give evidence. So her report will be no different to a human resources report.’

However, a ‘Save Boris’ operation is reportedly underway, with approximately 100 MP’s working together to sustain Johnson’s leadership.

It is also reported that several loyal supporters are aiming to bring wavering MP’s back to Johnson’s side by operating a ‘shadow whipping’ strategy. This includes telling rebel MP’s that it’s unlikely 54 votes will be reached for a vote of a no confidence should they decide to try ousting their current leader.


GBP/USD Exchange Rate Forecast: Will US GDP Boost USD?



Looking ahead, the Pound US Dollar (GBP/USD) exchange rate is likely to be influenced by a large amount of US data scheduled for release during today’s session.

Later this afternoon, USD may be bolstered by the US fourth quarter GDP release which is expected to report growth increased from 2.3% to 5.5%.

In addition, US initial jobless claims for January is forecast to decrease from 286K to 260K which suggests that more individuals are in employment and will further support the US economy.

On the other hand, the Pound may be buoyed by the CBI distributive trades survey which is predicted to show an increase from 8 to 13.

Meanwhile, due to a lack of other notable data, Sterling is likely to remain vulnerable to the UK’s political landscape.

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