Pound US Dollar Exchange Rate News: GBP/USD Firms as Risk Appetite Improves

Modified: Wednesday, 30 November 2022 12:05 BST - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Firms as Risk Appetite Improves

GBP/USD Exchange Rate Strengths amid an Upbeat Market Mood

The Pound to US Dollar (GBP/USD) exchange rate strengthened on Wednesday as the US Dollar (USD) fell out of favour ahead of a speech from Federal Reserve chairman Jerome Powell.

At time of writing the GBP/USD exchange rate traded at around $1.1990, which was up roughly 0.4% from Wednesday’s opening levels.

US Dollar (USD) Drops amid an Uptick in Risk Appetite

The US Dollar was down against the majority of its peers on Wednesday as risk-on flows undermined demand for the safe-haven currency.

USD investors were also cautious ahead of a key speech by Powell on Wednesday evening. Powell’s speech will centre around the country’s economic outlook, inflation and the labour market.

It’s possible that Powell could take the opportunity to push the idea of lower interest rates. Currently markets are pricing in a 50bps hike in the Fed’s next policy meeting, as investors believe that US inflation has reached its peak.

However, despite the expectation of a smaller hike investors seem to be hedging their bets, demonstrated by their cautious mood. It’s possible that Powell could push back on the idea that inflation has peaked. If he indicates the terminal rate needs upwards revision the ‘Greenback’ could be lifted.

Elsewhere, USD could attract support as the latest US GDP estimate is expected to confirm US growth rebounded to 2.7% in Q3.

Pound (GBP) Limited by Poor Economic Outlook

The Pound (GBP) was up against the US Dollar but was subdued overall as weak UK economic sentiment weighed on Sterling.

A lack of significant data saw investors focus on bleak headlines on Wednesday. Businesses continued to report difficulties as the cost-of-living crisis continued to weigh on sales ahead of Christmas.

This combined with food inflation hitting 12.4% impeded the Pound’s movement. The sharp increase in food costs is reducing UK consumer’s spending power ahead of the holidays. Helen Dickinson OBE, CEO of the BRC predicts that many consumers will cut back on seasonal spending to curb the effect of the cos-of-living-crisis:

‘Christmas cheer will be dampened this year as households cut back on seasonal spending in order to prioritise the essentials.’

Exacerbating concerns about the economic downturn are reports that living standards are set to drop to a record low in 2023. According to the Office of National Statistics (ONS) as real wages continue to lag behind inflation, disposable income will continue to drop, further limiting GDP growth.

GBP/USD Exchange Rate Forecast: US Dollar to be Weighed Down by Data?

Looking ahead to Thursday it’s possible the US dollar could be influenced by the release of October’s core PCE price index.

The index is the Fed’s preferred method of measuring inflation. According to forecasts the index is expected to fall from 5.1% to 5%. that the slowdown will feed into suggestions that US inflation hast peaked, and could suppress Fed rate hike bets.

Turning to the UK, a lack of significant data for the rest of the week could leave the Pound vulnerable to worsening economic sentiment. If more businesses report dropping sales or enter administration, it’s possible the Pound could struggle for support.

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TAGS: Pound Dollar Forecasts