Pound US Dollar Exchange Rate News: GBP/USD Firms despite Risk-Off Sentiment

Modified: Thursday, 29 September 2022 16:35 BST - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Firms despite Risk-Off Sentiment

Pound US Dollar (GBP/USD) Exchange Rate Climbs, Defying Risk-Off Market Mood

The Pound to US Dollar (GBP/USD) exchange rate strengthened on Thursday as the Pound (GBP) firmed despite a downbeat market mood.

At time of writing the GBP/USD exchange rate traded at around $1.0972, roughly up 1.31% from Thursday’s opening levels.

Pound (GBP) Still Volatile as Investors Struggle to Acclimatise to Mini-Budget

The Pound (GBP) remained volatile during Thursday’s trading session as markets were still reeling from Friday’s mini-budget bombshell.

The budget, delivered by Chancellor Kwasi Kwarteng on Friday, contained £45bn of tax cuts that were to be funded by increased government borrowing. Investors disliked this and the Pound collapsed in response and has struggled to recover since, leaving GBP/USD to fluctuate around 37-year lows.

On Wednesday, the Bank of England (BoE) intervened in the bond market to stop it from crashing.

Whilst not the intervention investors were expecting – they’d been pricing in an emergency interest rate hike –markets rallied on Thursday. The support from the BoE seemed to ease investors’ fears somewhat and the Pound got a boost, though it still traded below pre-budget levels. Sterling’s gains were capped by Liz Truss’s refusal to abandon the budget, and the UK economy remains in a perilous position.

US Dollar (USD) Supported by Souring Market Sentiment

The US Dollar (USD) was down against the Pound on Thursday, but found success elsewhere as risk aversion buoyed the safe-haven currency. This in turn limited USD’s losses against GBP.

Geopolitical tensions between Russia and the West and the fear of a global recession continued to worry investors. As such, they flocked to the ‘Greenback’ on Thursday.

The main concern denting risk appetite was the continued conflict in Ukraine. On Wednesday, the Kremlin announced that all Russian-occupied territories that were forced into ‘sham’ referendums would be annexed by Russia on Friday.

Ukraine and most EU countries condemned the referendums and tougher EU sanctions are being put in place against Russia in response. Also, Ukraine has been vocal about reclaiming their land, which all but assures an escalation in the war.

As such, investors opted for the safer US Dollar amid the bleak trading sentiment.

However, USD may have come under pressure following the latest GDP data.

The final US GDP growth rate for the second quarter of 2022 confirmed a 0.6% contraction, on top of Q1’s 1.6% contraction. With the US now definitely in a technical recession, this could have hurt the ‘Greenback’.

GBP/USD Exchange Rate Forecast: UK GDP to Dent the Pound?

Looking ahead the Pound US Dollar exchange could be impacted by the UK’s final quarterly GDP growth rate on Friday morning.

The data is expected to confirm that UK GDP contracted from -0.1% in the second quarter of 2022. If true, this could see the Pound shed its gains from Thursday. It could also have a bigger impact since the mini-budget plunged UK markets into chaos. Will contracting GDP add to worries about the UK economy?

The US also has significant data out on Friday, with the core PCE price index for August due to print. The index is forecast to reveal a monthly rise in inflation of0.5%. This could see USD investors price in more aggressive interest rate hikes from the Federal Reserve, as a rise in core inflation indicates that price pressures are becoming more broad-based.

In the meantime, USD will likely continue to trade on risk appetite and GBP could remain volatile as UK investors focus on domestic headlines.

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TAGS: Pound Dollar Forecasts