Pound US Dollar Exchange Rate News: GBP/USD Directionless after Hitting Near Two Week High

October 4, 2022 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Directionless after Hitting Near Two Week High

GBP/USD Exchange Rate Finds Fleeting Gains as Kwarteng Accelerates Fiscal Forecast Timeline

The Pound to US Dollar (GBP/USD) exchange rate briefly struck a near two-week high on Tuesday as Chancellor Kwasi Kwarteng announced plans to bring forward his debt cutting plans.

At time of writing the GBP/USD exchange rate traded at around $ 1.1334, which is roughly the same as Tuesday’s opening levels.

Pound (GBP) Continues Recovery amid Kwarteng’s Announcement

The Pound (GBP) initially firmed on Tuesday, nearing a two-week high against the US Dollar (USD) as Kwarteng said he would bring forward the release of his medium-term fiscal plan.

This follows a U-turn from Kwarteng at the start of the week regarding his planned cut to the 45p tax rate for high earners, stating that it distracted from a decent growth plan.

The Pound enjoyed strong support at the start of the week as markets welcomed the move.

Head of economics for NatWest Markets’ John Briggs said on Tuesday that:

‘The about-face ... will not have a huge impact on the overall UK fiscal situation in our view.

‘[but] Investors took it as a signal that the UK government could and is at least partially willing to walk back from its intentions that so disrupted markets over the past week.’

Sterling later relinquished some of its gains as a souring market mood takes its toll on the currency.

US Dollar (USD) Fluctuates amid Mixed Market Mood

The US Dollar initially traded on the back foot on Tuesday as a risk-on mood gripped investors, weakening the safe-haven ‘Greenback’.

In part the risk-on mood could be attributed to a weaker-than-expected print of the US manufacturing forecast. Previous data printed above 52.8 indicating growth within the manufacturing industry. However, the figures printed at 50.9 which showed a slowing of growth in the sector.

This slowing of growth has tempered investors expectation of a super aggressive interest rate hike from the Federal Reserve’s November’s policy meeting. This is a sentiment echoed by economists focusing on bond yields.

In a daily note Deutsche Bank strategist Jim Reid said:

‘Noticeably, that move lower was entirely driven by a fall in real yields, with inflation breakevens moving higher on [Monday], which is again a sign that investors are pricing in a much less aggressive reaction from the Fed.’

However, the US Dollar then managed to recoup the majority of its losses as market risk appetite began to wane.

GBP/USD Exchange Rate Forecast: USD to be Driven by Jobs Openings?

Looking ahead impetus for the Pound US Dollar could be caused by the release of job centric data on Tuesday.

Jobs Openings from the Job Openings and Labour Turnover survey (JOLTs) is expected to have fallen from over 11m to 10.7m in August. Signs that the US job market may be cooling could stoke global recession fears and ultimately boost the US Dollar.

Otherwise, US Dollar investors will be keeping an eye on several Fed speeches. If the Fed becomes more cautious then USD could slip further in markets. If the tones of the speeches are hawkish then this could bolster the ‘Greenback’.

In an absence of data, GBP investors could continue to trade based on political headlines and developments within the fiscal plan. Could further reversals in the mini-budget see Sterling recover further?

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