Pound US Dollar Exchange Rate News: GBP/USD Continues to Reels from BoE’s Dovish Rate Hike

Modified: Monday, 21 March 2022 11:05 BST - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Continues to Reels from BoE’s Dovish Rate Hike

GBP/USD Drops Following BoE’s Dovish Outlook

The Pound US Dollar (GBP/USD) exchange rate is trading lower as Sterling is still reeling from the Bank of England’s (BoE) dovish forward guidance.

At the time of writing, the GBP/USD exchange rate is trading at approximately $1.3150, roughly down 0.2% from today’s opening levels.

Pound (GBP) Slips After BoE’s Dovish Forward Guidance

The Pound (GBP) is down against the US Dollar (USD) today as GBP investors remain cautious in light of the BoE’s dovish forward guidance.

Last week, the BoE raised interest rates from 0.5% to 0.75% as part of the central bank’s efforts to ease soaring inflation.

Inflation is predicted to reach approximately 8% in April – almost one percent higher than last month’s expectations – and could rise further later in the year.

However, the vote was not unanimous, with policymaker Sir Jon Cunliffe voting to hold rates steady.

Not one of the Monetary Policy Committee (MPC) members voted to raise rates further, dampening future rate hike bets.

The BoE said:

‘The Committee judged that some further modest tightening might be appropriate in the coming months, but there were risks on both sides of that judgement depending on how medium-term prospects evolved.’

Moreover, the Russia-Ukraine war appears to be intensifying again, giving rise to fresh concerns over global inflation and supply chain issues which in turn could amplify the UK’s cost of living crisis.

Today, Ukrainian authorities have missed the Russian deadline to surrender Mariupol, rejecting Russia’s ultimatum.

On the other hand, Ukrainian President, Volodymyr Zelenskiy has stated that he is ‘ready for negotiations’ with Vladimir Putin, and that ‘without negotiations, we cannot end this war.’

Although previous peace talks have ended without any significant progress, it’s hoped the two leaders may have a greater chance of reaching an agreement. In turn, this is limiting the risk-sensitive Pound’s appeal this morning.

US Dollar (USD) Climbs Following Hawkish Signals from Fed Policymakers

The US Dollar (USD) is trading higher against the Pound (GBP) today as the ‘Greenback’ is underpinned by last week’s hawkish hints from Fed policymakers.

As predicted, the Fed raised interest rates from 0.25% to 0.5% for the first time in three years. Following this announcement, several policymakers claimed that the Fed should be taking additional aggressive action to contend with high inflation.

Chris Waller stated:

‘The data is screaming at us to go 50 (basis points) but the geopolitical events were telling you to go forward with caution.’

Meanwhile, James Bullard referred to the US economy as ‘especially resilient’ following the pandemic and geopolitical developments.

In turn, this is boosting future rate hike bets and supporting the ‘Greenback’.

The safe haven currency is also gaining some traction as the Russia-Ukraine war continues following Ukraine’s refusal to accept Russia’s terms of surrender.

Furthermore, following Joe Biden’s phone call with his Chinese counterpart Xi Jinping last week, the Chinese authorities have stated they ‘will do anything’ to de-escalate the war.

However, the Chinese have refused to condemn Putin’s attack against Ukraine and have claimed any calls for them to do so is ‘naïve’.

Should the US place sanctions against China – as Biden has previously suggested – it could stoke further geopolitical uncertainty and reinforce demand for the safe-haven US Dollar.

GBP/USD Exchange Rate Forecast: Will Geopolitical Developments Continue to Infuse Volatility into Markets?

Looking ahead, the Ukraine crisis may continue to stoke volatility in currency markets and weigh on the Pound US Dollar exchange rate.

However, should peace talks commence between Putin and Zelenskiy, it may improve market sentiment and boost Sterling.

Later in the week, the Pound may also be supported by the UK’s latest inflation figures. February’s release is forecast to report inflation increase from 5.5% to 5.9%, potentially reviving hopes the BoE could raise interest rates again in the near-term.

On the other hand, the ‘Greenback’ may be influenced by speeches from Fed Chair, Jerome Powell, and policymaker, Raphael Bostic, scheduled this afternoon.

Should these speeches strike a broadly hawkish tone, the US Dollar may be bolstered further.

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