Pound US Dollar Exchange Rate News: GBP/USD Wavered on Shifting Market Sentiment

May 22, 2023 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Wavered on Shifting Market Sentiment

US Dollar (USD) Undermined by Debt Limit Fears

The US Dollar (USD) traded sideways on Monday amid a lack of economic data. External factors appeared to influence the ‘Greenback’ as geo-politics and the ongoing debt limit negotiations concerned investors.

President Joe Biden reported that relations between the US and China were expected to improve ‘very shortly’. Attending the G7 summit in Japan, speculation grew of the US easing some their sanctions on China, potentially boosting both the economy and relations between the two biggest economies in the world. Talking after a three-day summit with fellow G7 leaders, Biden said:

‘We're not looking to decouple from China. We're looking to de-risk and diversify our relationship with China.

‘(G7 nations were unified in) resisting economic coercion together and countering harmful practices that hurt our workers.’

However, preventing USD investors, and the wider market, to be buoyed, were the ongoing debt ceiling negotiations. Despite optimism surrounding a deal being close, negotiations still appear to be far from being done. Following a phone call with House Republican Speaker Kevin McCarthy on Sunday, Biden said the conversation went well and will resume negotiations on Monday. US Treasury Secretary Janet Yellen commented that June 1 is the ‘hard deadline’ for the debt ceiling debate to be resolved.

Meanwhile, Federal Reserve Chair Jerome Powell reassured investors that the central bank is strongly committed to bringing inflation back down to the target level of 2%. Responding to the potential impact of banking turbulence on the monetary policy, Powell admitted that interest rate hikes may not need to climb so high. Pared rate hike bets kept a firm lid on the US Dollar.

Pound (GBP) Supported by Elevated Rate Hike Expectations

Meanwhile, the Pound (GBP) remained fairly subdued amid a lack of economic data to start the week off. Sterling enjoyed renewed support at the tail end of last week on rising interest rate hike bets.

GBP investors could also be waiting on the sidelines ahead of a myriad of economic data this week. All eyes will be on the inflation rate on Wednesday. An expected fall to 8.3%, which would be the lowest level since April 2021, could see rate hike bets severely pared. However, with inflation still far too high, GBP investors will look to Bank of England (BoE) for any further hints.

GBP/USD Exchange Rate Forecast: Fed Speeches to Rally the Greenback?

Looking ahead, the Pound US Dollar exchange rate could see further movement with several speeches from Fed policymakers. Amidst the turmoil of the debt ceiling debate and banking crisis, a hawkish tone could rally the ‘Greenback’ on improved rate hike bets.

Meanwhile, the Pound could see fluctuations with the release of both PMIs and public borrowing data. A mixed bag is expected for PMIs, with services predicted to slip, but manufacturing to modestly improve. As for government borrowing, public debt is expected to increase the most since early 2021.

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TAGS: Pound Dollar Forecasts