Pound US Dollar Exchange Rate News: GBP/USD Softened as BoE Rate Hike Bets were Pared

Modified: Wednesday, 17 May 2023 16:05 BST - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Softened as BoE Rate Hike Bets were Pared

Pound (GBP) Undermined by Loosening Labour Market

The Pound (GBP) struggled against many of its peers on Wednesday in the wake of a speech from Bank of England (BoE) Governor Andrew Bailey. Appearing before the British Chambers of Commerce’s annual conference, Bailey admitted that the UK labour market is showing signs of moderately loosening.

After downbeat employment data on Tuesday, compounded by a dovish hike from the BoE last week, investors remain uncertain around the central bank’s monetary policy going forward. But with Bailey commenting that the labour market is cooling, hints of a pause from the BoE are becoming more and more likely. Further adding to these claims, Bailey also said:

‘We have good reasons to expect inflation to fall sharply over the coming months, beginning with the April number. As headline inflation falls, second-round effects are unlikely to go away as quickly as they appeared.

‘The easing of labour market tightness is happening at a slower pace than we expected in February and the labour market remains very tight.’

However, preventing further losses is that Bailey did reiterate the central bank’s commitment in bringing inflation back down to 2%. He said:

‘Inflation is much too high, and we need to bring it back sustainably to our 2% target.

‘After the initial recovery in 2020, the level of economic activity, measured by monthly GDP, has failed to grow beyond its pre-pandemic level on a sustained basis.’

US Dollar (USD) Cheered by Debt Ceiling Optimism

Meanwhile, the US Dollar (USD) gathered strength as the day wore on. Upbeat moods permeated the market as negotiations between President Joe Biden and House Representative Kevin McCarthy admitted that talks had progressed.

Upon leaving the meeting on Tuesday, McCarthy told reporters that a deal would be close. A statement from the White House said:

‘(Biden is) optimistic that there is a path to a responsible, bipartisan budget agreement if both sides negotiate in good faith and recognize that neither side will get everything it wants.’

Despite optimism growing, the market mood remains relatively subdued with greater fears of global economic slowdowns. As such, safe-haven flows could be further propping up the ‘Greenback’.

GBP/USD Exchange Rate Forecast: Fed Speeches to Bolster the US Dollar?

Looking ahead, the Pound US Dollar exchange rate could see further daylight between the two currencies as a series of speeches from Federal Reserve policymakers could boost the ‘Greenback’. If a hawkish tone is adopted, the US Dollar could climb on renewed interest rate hike bets.

Meanwhile, a lack of economic data could weigh on the Pound as market mood remains mixed. Pared rate hike bets are likely to deter investors, which could see Sterling languish heading into the weekend.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Dollar Forecasts