Pound US Dollar Exchange Rate News: GBP/USD Wavered as BoE Announce Further Interventions

October 10, 2022 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Wavered as BoE Announce Further Interventions

Pound (GBP) Subdued amid Truss’ Government Reset

The Pound (GBP) is struggling for demand today as Prime Minster Liz Truss attempts to repair an increasingly fractious government.

With political uncertainty back on the table after a tumultuous campaign trail, Truss is hoping to implement a reset amid flagging support. Investors have been deterred as confidence in the UK government plummeted after Chancellor Kwasi Kwarteng’s disastrous mini-budget. With the market in turmoil, Truss hopes to settle nerves as she plans to restore confidence of both investors and the UK itself.

Meanwhile, the Treasury has confirmed that it intends to bring forward the publication of the economic forecast. The Office for Budget Responsibility’s (OBR) report was due for November 23rd but with mounting pressure to release it early, the Treasury obliged. The move will be seen to allay growing fears of the government’s fiscal plans, and they intend to fund them. Surging borrowing costs have rattled the markets and deterred GBP investors.

Elsewhere, the Bank of England (BoE) have confirmed further intervention in the markets. The central bank confirmed increasing the size of daily auctions for gilt purchases when the emergency measures end on 14th October. In a statement released Monday morning, the BoE said:

‘In line with the Bank’s financial stability objective and to avoid dysfunction in core funding markets, the purpose of these operations is to enable liability driven investment (LDI) funds to address risks to their resilience from volatility in the long-dated gilt market. LDI funds have made substantial progress in doing so over the past week.’

Weighing on Sterling, however, is elevated interest rate hikes from the Federal Reserve. The perpetual hawkish stance the Fed have adopted has caused UK bond yields up, exacerbating UK debt level fears.

US Dollar (USD) Buoyed on Bolstered Rate Hike Bets

The US Dollar (USD) enjoyed moderate success on Monday in the wake of waning global market sentiment. A more risk-averse market mood bolstered safe-haven flows, and in turn the ‘Greenback’.

On the back of strong jobs data from last Friday, the US Dollar remains strong heading into the new week. With Fed policymakers insisting on not wavering from their goal of bringing inflation down, stronger-than-expected payroll figures boosted that claim. Data released on Friday showed the US economy added 263,000 more jobs in September whilst the unemployment figure fell to 3.5%. With speeches coming up from the Fed, an expected hawkish rhetoric could keep investors’ upbeat.

Meanwhile, in the wake of OPEC opting to cut oil production amid global recession fears, US Treasury Secretary Janet Yellen has warned that cutting oil production is ‘unhelpful and unwise’. Yellen added:

‘It’s uncertain what impact it will end up having, but certainly, it’s something that, to me, did not seem appropriate, under the circumstances we face. We’re very worried about developing countries and the problems they face.’

With mounting recession fears, safe-haven flows could persist, bolstering the US Dollar.

GBP/USD Exchange Rate Forecast: Hawkish Fed Speeches to Bolster the Greenback?

Looking ahead, the Pound US Dollar exchange rate could see further movement with speeches from the Fed later on Monday. An expected hawkish stance could bolster Fed rate hike bets.

Meanwhile, the Office for National Statistics (ONS) will be releasing the latest UK labour market data. Hopes of a continued tight labour market could see further rate hikes on the horizon. Unemployment is expected to remain at a 48-year low of 3.6%, but a fall in employment is also predicted.

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TAGS: Pound Dollar Forecasts