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Pound to Dollar Rate Firms amid Cheery Market Mood

October 30, 2023 - Written by Frank Davies


The Pound US Dollar (GBP/USD) exchange rate fluctuated on Monday, drifting higher overall, as an increased risk appetite undermined the safe-haven US Dollar (USD).

At the time of writing GBP/USD was trading at $1.2145, up approximately 0.2% from Monday’s opening rate.  

The Pound (GBP) edged higher during Monday’s session, boosted by an increasing appetite for risk.

While the increasingly risk-sensitive Pound gained some ground amid an upbeat market mood, gains were capped amid ongoing concerns over the health of the UK economy.

UK recession fears lingered on Monday, in the wake of the previous week’s gloomy data releases. Declining business activity and a loosening labour market pointed to an ongoing UK economic slowdown. As such, GBP remained a less-than-favourable investment option on Monday but held steady ahead of impactful data releases due out later in the week.

Monday morning’s release of UK mortgage lending data showed further slowing within the housing market. Although not directly harming GBP bids, declining mortgage approvals indicated a weakening economy and exacerbated general recession worries.

Ahsley Webb, an economist at Capital Economics, responded to Monday’s mortgage data, commenting:

‘a mild recession may already be underway, and it [UK mortgage data] supports our view that the Bank of England will leave interest rates on hold at 5.25% on Thursday’.

Amid a fragile UK economy, wide expectations of an impendingBank of England (BoE) interest rate hold remain in place. This left Sterling to trade without a clear direction for the remainder of Monday’s session.

The US Dollar (USD) initially stumbled on Monday during a period of improving risk appetite but was ultimately muted ahead of this week’s Federal Reserve interest rate decision.

Fed commentary has been increasingly indicative of a continued rate hold, leaving pared rate hike bets to stunt USD movement. Investors remained hesitant to place aggressive bids on Monday, as economists affirm speculation of a hawkish rate hold, delivered on the back of economic resilience in the US.

Gregory Draco, Chief Economist at EY, commented:

‘The recent string of positive economic surprises will keep the Federal Reserve on high inflation alert, but it won't tilt the Federal Open Market Committee toward another rate hike at the November meeting.

With reluctant investors holding steady ahead of the Fed’s monetary policy meeting, the ‘Greenback’ remained vulnerable to risk appetite for the remainder of Monday’s session. A cautiously optimistic market mood weighed on the safe-haven ‘Greenback’.

GBP/USD Forecast: Exchange Rate Muted Ahead of Rate Decisions?

Coming up, the currency pairing could remain muted ahead of key interest rate decisions from the US and UK central banks later in the week. Both the Pound and the US Dollar could continue trading sideways, with investors hesitant to place aggressive bets in the interim.

Looking forward, developing concerns surrounding the Israel-Hamas conflict could also sour the currently upbeat mood. If risk appetite declines, investors may opt for the safe-haven US Dollar in place of the increasingly risk-sensitive Pound.

Amid ongoing concerns for the health of the UK economy, the Pound may continue to struggle in the coming days. Investors and analysts alike remain wary of a potential UK recession, which could see the Pound falter amid a lack of notable UK data.

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