Pound US Dollar (GBP/USD) Exchange Rate Rises despite Lack of Impactful Data

Modified: Wednesday, 7 December 2022 12:05 BST - Written by John Cameron

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Rises despite Lack of Impactful Data

Pound US Dollar (GBP/USD) Exchange Rate Strengthens despite Lack of Impactful Data

The Pound US Dollar (GBP/USD) exchange rate strengthened on Wednesday, despite a lack of impactful economic data.

At the time of writing, GBP/USD traded at around US$1.2159, an increase of 0.2% from Wednesday’s opening rates.

Pound (GBP) Strengthens despite Lack of Macroeconomic Data

The Pound (GBP) firmed on Wednesday, despite the lack of a clear catalyst for movement. As such, investors have supported Sterling against several peers.

Potentially prompting the support was the signing of a UK/US gas trade deal, in a move to reduce the impact the sharp rises in European energy prices have had on the UK.

Despite not holding much reliance on Russian gas exports, the UK has been affected by the sharp increase in prices on the back of the Ukraine-Russian conflict. The deal with the US aims to double the amount of liquified natural gas (LNG) exported to the UK, in order to combat energy supply shortages in the winter.

US President Joe Biden and UK Prime Minister Rishi Sunak said in a joint statement: ‘Working with our allies, the United States and United Kingdom commit to intensify our collaboration to support international energy security, affordability, and sustainability.’

Elsewhere, general volatility within the markets could have weighed on GBP. Investor risk appetite remained largely tepid during Wednesday’s session, meaning the increasingly risk-sensitive Pound would have been held back from making strong gains.

US Dollar (USD) Mixed as Tepid Market Mood Counters Rate Hike Confusion

The US Dollar (USD) lacked strong direction on Wednesday, as a slightly risk-on market mood was countered by confusion over investor bets for the Federal Reserve’s upcoming interest rate hike.

With China beginning to reopen it’s doors after the government dropped it’s strict zero-Covid policy, investors have been optimistic about the economic superpower’s future. However, Wednesday morning brought a sharp decline in China’s trade surplus, with both imports and exports falling significantly. As such, the risk appetite in the market remained slightly towards risk-on, preventing the US Dollar from enjoying safe-haven flows.

Further limiting the ‘Greenback’ on Wednesday was a lack of clarity around interest rate hikes from the Federal Reserve. Following Fed Chair Jerome Powell’s speech the previous week, investors anticipated a more modest rate hike from the Fed than was previously expected.

However, a string of positive economic data for the US has brought back investor hopes for aggressive Fed tightening. With the Fed on blackout until next week’s meeting, investors have been unable to attain any clarity over future rate hikes, leading to mixed trade.

Pound US Dollar (GBP/USD) Exchange Rate Forecast: US PPI in Focus

Looking ahead for the US Dollar, Friday brings the latest PPI data for November. With US inflation previously showing signs of cooling, the year on year figures may add further impetus for the Federal Reserve to begin slowing the pace of interest rate hikes, which could lead to a weakening dollar.

However, the month-on-month figure is expected to show an uptick from 0% to 0.2% in core PPI, which may prompt investor bets for higher rate hikes, which would in turn boost the US Dollar.

Furthermore, the Michigan consumer sentiment for December is forecast to show an uptick from 56.8 to 56.9. The increase in consumer optimism may bring a boost the consumption-based US economy, and prompt support for the ‘Greenback.’

On Thursday, the latest jobless claims data for the US is also due to print. An increase from 225,000 to 230,000 is expecting, which may weaken support for USD as the labour market shows signs of worsening.

For the Pound, the lack of economic data releases continues to the end of the week. As such, market sentiment towards the UK economy may be the core catalyst of movement. With the economic outlook for the UK continuing to darken in the midst of the cost-of-living crisis, recession and increasing industrial action, further headlines focused on these issues could weaken Sterling.

However, a ray of optimism for GBP could be found if any further progress is made on the Northern Ireland Protocol.

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TAGS: Pound Dollar Forecasts