Pound US Dollar Exchange Rate News: GBP/USD Traded Erratically ahead of Fed Rate Decision

February 1, 2023 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Traded Erratically ahead of Fed Rate Decision

US Dollar (USD) Quiet as Investors Wait on the Sidelines

The US Dollar (USD) remained fairly subdued as investors move to the sidelines in anticipation of the Federal Reserve interest rate decision on Wednesday evening.

In the meantime, labour market data could influence proceedings. JOLT job openings and the employment change could sway USD investors. Another contraction in the ISM manufacturing PMI could also exert further pressure on the ‘Greenback’.

An expected slowing of the Fed’s aggressive rate hiking cycle has cheered the wider market but has weighed on USD investors. However, an expected hawkish tone from the Fed could boost the ‘Greenback’. But if the central bank alludes to pausing the rate cycle, the US Dollar could remain under pressure.

Pound (GBP) Undermined by Relentless Domestic Woes

Meanwhile, the Pound (GBP) struggled for a clear direction on Wednesday as a lack of economic data left it exposed to a myriad of domestic pressures.

One of the biggest single days of industrial action is set to exert pressures on the economy on Wednesday. More than 475,000 workers are set to walk out over pay disputes. With inflation hitting double digits in 2022, real-terms wages fell 3%, the largest single drop since 1977. Mary Bousted, General Secretary of the National Education Union (NEU), commented:

‘I think that the government really would do well to dial down the invective and the rhetoric and remember that in the end we have got to come to a resolution of this dispute.

‘And, in the end, remember that they’ve got an election coming up really quite soon and there are half a million teachers who, at the moment, don’t think much of them or what they are doing.’

Meanwhile, a sixth consecutive month of contracting activity signalled a recession for the manufacturing sector. However, optimism that the worst is finally over could be keeping the Pound from plunging further. Companies are receiving less work orders, and still have difficulty in sourcing materials. Rob Dobson, Director at S&P Global, commented on the data:

‘UK manufacturers faced a tough operating environment at the start of 2023, leading to reducing intakes of new business, declining production volumes and lower staffing levels. Weak demand at home and overseas, supply chain constraints, strikes and the continuing impact of high inflation all stymied the performance of manufacturers.’

GBP/USD Exchange Rate Forecast: Fed Rate Decision to Spur the Greenback?

Looking ahead, all eyes will be on the Fed interest rate decision on Wednesday evening. The Pound US Dollar exchange rate could see further movement despite an expected modest 25bps hike from the Fed. The press conference from Fed Chair Jerome Powell could inspire investors, as the market expects a hawkish tone.

Meanwhile, the Pound will be looking towards Thursday and their own respective interest rate decision. The Bank of England (BoE) is expected to increase the cash rate by 50bps again, but the dire economic situation lingering in the UK could limit gains from a maintained aggression from the BoE.

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TAGS: Pound Dollar Forecasts