Pound US Dollar Exchange Rate Muted as Reports Highlight Harmful Impact of Brexit

February 9, 2022 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate Muted as Reports Highlight Harmful Impact of Brexit

Pound US Dollar (GBP/USD) Exchange Rate Trends Sideways amid Risk-On Mood

The Pound US Dollar (GBP/USD ) exchange rate has ticked upward today amid a mild risk-on sentiment throughout the markets, but remained rangebound since. A downturn in US bond yields has likely caused the US Dollar (USD) to slip against its peers.

At time of writing the GBP/USD exchange rate is at around $1.3566, virtually unchanged from this morning’s opening figures.

Pound (GBP) Edges Upward as Prominent Donor Calls for Johnson’s Resignation

The Pound (GBP) has ticked upwards against its safer rivals amid a mild risk-on sentiment in the markets. Sterling has remained subdued elsewhere however as Brexit and domestic political tensions continue to weigh on the currency.

Reports on Wednesday indicating that Brexit has caused more harm than good for UK businesses is likely to keep pressure on the currency. The report from the Public Accounts Committee (PAC) said it ‘was clear’ that the UK’s exit from the EU had impacted the country’s volume of trade.

PAC chair Meg Hillier warned that things were only likely to get worse once further checks are introduced later in 2022:

‘It's time the government was honest about the problems rather than overpromising.’

Border checks have become a key battleground in Northern Ireland this week, with disruption within the NI government also likely to affect confidence in Sterling. Following the resignation of the DUP’s Paul Givan last week in protest over the Northern Ireland Protocol, the power-sharing government at Stormont has been unable to approve many new policies.

Further calls for Prime Minister Boris Johnson’s resignation are also likely to continue to limit GBP’s upward movement today. John Armitage, a prominent donor to the Conservative party, told the BBC on Wednesday that he felt Johnson was ‘past the point of no return’:

‘If you do something or say something, which on the front page of the Sunday Times looks terrible, and you do that consistently, and you betray a sense of not really caring, I think you should leave.’

US Dollar (USD) Ticks Downward as Investors Await Inflation Figures

The US Dollar (USD) has slipped against the majority of its rivals today, as a risk-on trading mood undermines the safe-haven ‘Greenback’. Investors may also be holding off on any bullish bets on USD ahead of Thursday’s consumer inflation figures.

Losses for the US Dollar (USD) may have been underpinned however by general investor sentiment regarding an aggressive forward policy for the US Federal Reserve. Average hourly earnings rose by 0.7% in January and an average pace of 5.7% over the alst 12 months, the fastest-ever move since March 2007.

Analysts are anticipating that rapidly rising wages in the US are likely to push the Fed to raise rates at even faster pace than initially thought. Ethan Harris, Bank of America’s head of global economics research, had the following analysis of the Fed’s potential next moves:

‘When we get this broad-based increase and it starts making its way to wages, you’re behind the curve and you need to start moving.’

GBP/USD Exchange Rate Forecast: Will US Inflation Prove as Robust as Forecast?

Looking to the rest of the week for the Pound, a speech from Bank of England (BoE) Governor Andrew Bailey could lift Sterling on Thursday should investors pick up on any hawkish comments.

Friday’s GDP figures for the UK could harm Sterling’s upward momentum however, with growth expected to fall in December compared to 2021. Additionally, preliminary growth readings for the fourth quarter are forecast to remain unchanged which may harm long-term expectations for the UK’s economic recovery.

USD investors are likely to be keenly awaiting Thursday’s January inflation figures with forecasts indicating that the rate is set to rise further. This could prompt additional bets on USD as the figures could push the Fed to raise rates sooner that initially signalled.

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