Pound US Dollar Exchange Rate News: GBP/USD Drops as US Investor Reprice Fed Expectations

November 14, 2022 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Drops as US Investor Reprice Fed Expectations

GBP/USD Exchange Rate Sinks as US investors Readjust Rate Hike Expectations

The Pound to US Dollar (GBP/USD) exchange rate dropped on Monday, spurred on by reassuring comments made by Federal Reserve policymaker Christopher Waller.

At time of writing the GBP/USD exchange rate traded at around $1.1740, which was roughly down 0.8% from Monday’s opening level.

US Dollar (USD) Climbs amid Renewed Interest Rate Hopes

The US Dollar (USD) was up against the majority of its peers on Monday, buoyed by cautious market sentiment and a hawkish the Federal Reserve.

The main impetus for the ‘Greenback’ was caused by comments made by Fed policymaker Christopher Waller over the weekend. Whilst Waller said the Fed was considering ‘softening’ the rate of policy tighten, he urged investors to focus on the long-term goals:

‘We're at a point we can start thinking maybe of going to a slower pace, we're not softening...Quit paying attention to the pace and start paying attention to where the endpoint is going to be. Until we get inflation down, that endpoint is still a ways out there.’

This helped to reverse some of the US Dollar’s losses from last week, which were triggered by the publication of a weaker-than-expected US inflation print as it prompted USD investors to scale back bets on future Fed rate hikes.

Pound (GBP) Under Pressure from Economic Woes

The Pound (GBP) was down against the majority of its peers on Monday, dented by the UK’s deteriorating economic outlook.

Ever since the Bank of England (BoE) announced the country was entering a long recession in early November, the Pound has struggled for support. The cost-of-living crisis, compounded by recessionary fears has hit retailers and consumers alike.

On Monday bleak domestic headlines focusing on dropping business revenue and rising energy costs drove Sterling. According to the Office of National Statistics (ONS) one-in-five businesses have reduced their opening hours to offset energy costs.

Whilst the Resolution Foundation has said consumers expendable income will shrink this winter as customers pay extra on energy.

Speaking on the UK’s economic state, Michael Saunders, former member of the Bank’s Monetary Policy Committee said:

‘The UK economy as a whole has been permanently damaged by Brexit. It’s reduced the economy’s potential output significantly, eroded business investment. If we hadn’t had Brexit, we probably wouldn’t be talking about an austerity budget this week.’

The austerity budget refers to Chancellor Jeremy Hunt’s Autumn Statement, which is due on Thursday. It’s widely believed that Hunt will help curb inflation by slashing public spending and increasing taxes in an attempt to fill a ‘black-hole’ in public finances.

Whilst the expectation of the statement might have underpinned the Pound’s movement, it did little to reduce its losses on Monday.

GBP/USD Exchange Rate Forecast: GBP to be Driven by Employment Data?

Looking ahead, the Pound US Dollar exchange rate will likely be driven by UK employment data scheduled for release on Tuesday.

According to expectations, the UK’s unemployment rate in September is expected to hold steady at 3.5%. A drop in unemployment could reassure investors about the labour market, and lift Sterling. Whilst a rise could reaffirm recessionary concerns and dent GBP.

Turning to the US, October’s producer price inflation is also due on Tuesday. Having risen by 0.4% in September, it’s expected to rise by a further 0.4% in October. This will likely support the US Dollar as higher prices could incentivise further policy tightening from the Fed.

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TAGS: Pound Dollar Forecasts