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Pound US Dollar (GBP/USD) Exchange Rate Wavers ahead of Central Bank Speeches

April 21, 2022 - Written by John Cameron

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GBP/USD Exchange Rate Trades Sideways on Mixed Trading Stimuli

The Pound US Dollar (GBP/USD) exchange rate is wavering so far today as both currencies face headwinds.

Pound (GBP) sentiment is dampened by a weak economic growth forecast as well as political volatility following the ‘Partygate’ scandal; meanwhile, the US Dollar (USD) fails to climb ahead of Federal Reserve Chairman Jerome Powell’s testimony this afternoon.

At the time of writing, GBP/USD is trading at $1.3062, virtually unchanged from today’s opening levels.

Pound (GBP) Dented by Growth Forecast, Partygate Scandal

The Pound is under pressure against its peers today as weak growth forecasts from the International Monetary Fund (IMF) weigh upon trading sentiment alongside political headwinds and dovish comments from the Bank of England (BoE).

Exerting substantial downside, the IMF predicted in its report yesterday that the UK will have the weakest growth of all G7 nations in 2023. Specifically, IMF analysts forecast that mounting price pressures in the UK, exacerbated by geopolitical tensions, will slow economic growth as rising interest rates ‘cool investment’.

The assessment of the Monetary Fund chimes with the BoE’s own increasing concerns about the UK’s economic outlook, as the country is currently in the throes of a historic squeeze on living standards.

Following the central bank’s March meeting, members of the Monetary Policy Committee (MPC) judged that modest tightening in monetary policy may be appropriate in the coming months but acknowledged risks on both sides of that judgement depending on how inflation prospects evolve.

Subsequently, many FX strategists have labelled expectations for further BoE rate hikes totalling nearly 150 bps this year as overly excessive.

Also capping Sterling gains are recent developments regarding the UK’s ‘Partygate’ scandal.

Yesterday, Prime Minister Boris Johnson apologised to Members of Parliament for breaching lockdown laws after the police issued him with a fine; but dismissed calls that he resign as PM.

MPs are due to vote today on whether Johnson should be investigated for misleading Parliament, although Johnson attempted to delay the vote until probes by the Met Police and civil servant Sue Gray have finished.

US Dollar (USD) Flounders ahead of Powell Testimony

The US Dollar is struggling to gain against its peers today as investors refrain from placing bullish bets ahead of Fed Chairman Powell’s testimony at the International Monetary Fund seminar.

Capping significant losses, the yield on the benchmark 10-year Treasury note rose 3.5 basis points to 2.871% today, while the yield on the 30-year Treasury bond moved 3.4 basis points higher to 2.909%.

Nevertheless, mixed comments from Fed officials prevent the ‘Greenback’ from gathering strength.

Chicago Fed President Charles Evans noted he was not expecting inflation to drop back to 2% next year, though conceded that special factors driving inflation higher may ramp down; elsewhere, San Francisco Fed President Mary Daly remarked it would be ‘abrupt or surprising’ to see the policy rate rising to 2.5% this year.

Amidst such contradictions, markets appear confident that the Fed will imminently be tightening monetary policy at a faster pace.

Several analysts support this theory, as Grace Peters at JPMorgan Private Bank remarks that her team expect inflation to peak during the second quarter of this year, but that it makes sense for the central bank to go ahead with 50 basis point rate hikes.

Meanwhile, Mitul Kotecha, senior EM strategist with TD Securities, says:

‘There is some thought Powell and Lagarde will magically stabilise markets… I don't think this is a forum for Powell to announce anything new, but nonetheless, there is probably hesitancy for larger movements and in markets ahead of this IMF debate.’

GBP/USD Exchange Rate Forecast: IMF Seminar to Inspire Movement?

Both BoE Governor Andrew Bailey and Jerome Powell of the Federal Reserve will speak at a debate hosted by the International Monetary Fund later today and may influence trading dynamics with their outlook for the global economy.

Elsewhere, US jobs data and a speech from BoE policymaker Catherine Mann could also affect GBP/USD. If jobless claims fell last week as expected, USD may enjoy tailwinds; while a dovish speech from Mann is likely to exert Sterling downside.

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