Pound US Dollar (GBP/USD) Exchange Rate Climbs as BoE Policymakers Hint at Further Rate Hikes

Modified: Thursday, 24 November 2022 12:35 BST - Written by John Cameron

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Climbs as BoE Policymakers Hint at Further Rate Hikes

Pound US Dollar (GBP/USD) Exchange Rate Bolstered by Hawkish BoE Comments

The Pound US Dollar (GBP/USD) exchange rate climbed on Thursday. A positive risk appetite helped to bolster the currency pair. The release of the latest dovish FOMC minutes also boosted the pair. Hawkish comments from Bank of England (BoE) officials lent further support to the exchange rate.

GBP/USD saw gains capped by hints of a potential rate hike slowdown from the BoE, however. Further evidence of a private sector downturn in the UK also weighed on the currency pair, as well as widespread industrial action.

At time of writing the GBP/USD exchange rate is at around $1.2125, which is up roughly 0.4% from this morning’s opening figures.

Pound (GBP) Bolstered by Hawkish Comments from BoE Policymakers

The Pound (GBP) firmed on Thursday amid a return of global risk appetite. Sterling found support from hawkish comments by several Bank of England (BoE) officials.

Speaking in a lecture on Wednesday evening, BoE chief economist Huw Pill said:

‘Given the need to contain the risk of greater inflation persistence implied by potential second round effects, further action is likely to be required to ensure inflation will return sustainably to its 2% target over the medium term.’

BoE Deputy Governor Dave Ramsden added to market speculation of further rate hikes on Thursday. Ramsden signalled that his preference was ‘towards further tightening’, pushing GBP higher.

Ramsden’s comments also weighed on Sterling and limited gains, however. The deputy governor outlined how unexpected developments in the UK economy would lead him to ‘consider the case for reducing Bank Rate’.

Data indicating a downturn in the UK’s manufacturing sector also kept pressure on the Pound. The Confederation of British Industry’s (CBI) latest industrial trends orders fell to -5 in November.

An easing of supply chain pressures prevented too drastic a fall for the sector, but a gloomy outlook from businesses weighed on Sterling.

The announcement of widespread industrial action this week also kept Sterling’s gains limited on Thursday. RMT general secretary Mick Lynch met with UK transport secretary Mark Harper in an attempt to avert strikes planned for December and January. University staff and postal walkers also staged industrial action on Thursday.

US Dollar (USD) Ticks Lower as FOMC Minutes Confirm Dovish Fed Turn

The US Dollar (USD) edged lower against many of its rivals on Thursday as markets were closed for Thanksgiving. Some dip-buying helped to prevent drastic losses for the currency. A risk-on market mood weighed on the safe-haven ‘Greenback’, however.

The losses for USD came after the release of the latest FOMC minutes on Wednesday. The minutes indicated that a ‘substantial majority’ of Fed policymakers favoured a slowdown in policy tightening. The shift to a more dovish tone led to speculation of a 50bps rate hike from the central bank at their next meeting.

The minutes added to the paring back of Fed rate hike bets by the markets after data releases on Wednesday pointed to a resilient US economy.

An analysis by economists Francesco Pesole, Frantisek Taborsky, and Chris Turne of INGThink said:

‘When adding the lower-than-expected October CPI reading to the equation, expecting more than 50bp in December would look quite counterintuitive now, and a switch to 25bp increases from the January meeting appears increasingly likely.’

GBP/USD Exchange Rate Forecast: Will Mann Add to BoE Rate Hike Bets?

Looking to the remainder of the week for the Pound, a speech from BoE policymaker Catherine Mann on Thursday could bolster the currency. Markets will looking for any signs of further interest rate hikes from the central bank.

Any further signs of a poor outlook for the UK’s economy could weigh on Sterling, however.

There will be no further significant data releases for the US Dollar this week. The ‘Greenback’ will likely be affected by any changes in risk appetite, as well as market bets on further rate hikes from the Fed.

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TAGS: Pound Dollar Forecasts