Pound US Dollar (GBP/USD) Exchange Rate Rallies Ahead of Key US Data

November 1, 2022 - Written by John Cameron

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Rallies Ahead of Key US Data

Pound US Dollar (GBP/USD) Exchange Rate Rallies ahead of US Data Releases

The Pound US Dollar (GBP/USD) exchange rate rallied on Tuesday, as the market braces for upcoming US Data releases.

This mood saw the GBP/USD exchange rate trade at roughly US$1.1538 at the time of writing, a rise of around 0.6% from Tuesday’s opening rates.

US Dollar (USD) Weakened amid Risk-Positive Market Mood

Tuesday saw the US Dollar weaken against most major peers due to a risk-on market sentiment, and a readjustment ahead of key data releases for the US Economy.

With the market sentiment favouring risk-sensitive currencies such as the New Zealand Dollar (NZD), the safe-haven ‘Greenback’ was unable to draw much attention from investors during the beginning of Tuesday’s session.

With Tuesday afternoon scheduled to bring ISM manufacturing PMI data and JOLTS job openings, the market is expecting both sets of data to show a bleak outlook for the US economy.

With the manufacturing PMI expected to demonstrate a stall, and for job openings to have fallen, the forecast paints a dour outlook for the US economy, despite assurances of resilience. As such, this has led to the ‘Greenback’ lacking support as it calls into question just how far future Federal Reserve rate hikes will go.

Pound (GBP) Struggles as UK Economic Outlook Continues to Darken

The Pound (GBP) struggled for support on Tuesday, despite rallying against the US Dollar (USD). GBP was dented by the combined impact of bleak manufacturing data and widening national debt.

Tuesday morning brought the release of October’s final manufacturing PMI. While the data did come in above forecast, it showed a fourth consecutive month of contraction in the sector, alongside a sharp drop in new orders. Orders have fallen at the fastest pace since May 2020.

With the manufacturing PMI showing a 29 month low, Sterling lacked support from investors despite the weakening US Dollar.

The widening public sector debt also weighed on Sterling during Tuesday’s trade, as reports of the fiscal statement began to swirl.

Chancellor Jeremy Hunt and Prime Minister Rishi Sunak are reported to be pursuing a 50/50 split between tax rises and public spending cuts, with ‘stealth’ increases in income tax and national insurance contributions expected to be rolled out over the next couple of years.

A source from the Treasury expanded upon this, stating: ‘The truth is that everybody will need to contribute more in tax if we are to maintain public services. After borrowing hundreds of billions of pounds through Covid-19 and implementing massive energy bills support, we won’t be able to fill the fiscal black hole through spending cuts alone.’

Pound US Dollar Exchange Rate Forecast: Rate Hikes in Focus

Looking ahead for the Pound, Thursday’s interest rate decision from the Bank of England (BoE) is going to be the focal point for investors. As a hike of 75bps has been priced in by markets, the impact may be modest.

However, analysts have begun to expect a smaller rate hike from the BoE as they have had to come to the decision without knowledge of the UK government’s fiscal plan. With a possible 50bps hike on the cards, a dovish pivot from the BoE may weaken GBP.

For the US Dollar, the Federal Reserve are due to bring their interest rate decision on Wednesday. With a 75bps hike expected, further movement will come from the following speech from Fed policymakers. Any hawkish indications may serve to boost the ‘Greenback’.

Further affecting the pairing may be the release of the US balance of trade and non-manufacturing PMI data on Thursday. With the US trade deficit expected to widen, and non-manufacturing to show a modest slowdown, both data releases could serve to mute USD.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Dollar Forecasts