Pound US Dollar Exchange Rate Firms

November 1, 2023 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate Firms

The Pound US Dollar (GBP/USD) exchange rate was choppy on Tuesday, ticking up overall, as an increased appetite for risk dented the safe-haven US Dollar (USD).

At the time of writing the GBP/USD exchange rate was trading at $1.2193, up approximately 0.2% from Monday’s opening rate.  

The Pound (GBP) gained some ground on Tuesday as risk appetite increased, amid a lack of notable UK data.

However, Sterling’s gains were limited, as persistent UK recession fears curtailed investor interest ahead of the Bank of England’s (BoE) interest rate decision.

Recent data has painted an increasingly gloomy picture for the future of the UK economy. Reports have shown a significant slowdown in business activity and consumer spending, as cost-of-living concerns continue to permeate British households.

As UK economic pessimism continued to undercut investor confidence in the Pound, BoE rate bets stagnated Tuesday. This left the Pound to trade in a narrow range despite initial support from an upbeat market mood.

Sterling also found its movement limited as markets awaited the BoE interest rate decision on Thursday. With the policy meeting looming, GBP investors were reluctant to reposition on the Pound.

The US Dollar (USD) stumbled on Tuesday as investors braced for market volatility ahead of the Federal Reserve’s upcoming interest rate decision.

An upbeat market mood stifled USD, as investors held steady in anticipation of the Fed’s vital interest rate decision. The ‘Greenback’ remained muted in the interim, with a widely expected rate hold fuelling investor reluctancy.

Despite strong US economic data and sticky inflation, expectations of an immediate rate hike remained remarkably low. Analysts began to speculate that a continued rate hold could boost the Fed’s chances of achieving a ‘soft landing’.

George Buckley, Research Analyst at Nomura, commented:
‘Rising international bond yields and geopolitical concerns - notwithstanding the potential impact on energy prices of the latter - suggest against higher rates’.

Expectations that the Fed would leave rates unchanged kept USD subdued.

In addition, a cautiously upbeat market mood pushed the safe-haven US Dollar lower. Markets were seemingly hopeful that central banks around the world were done raising interest rates, and that inflation would continue to moderate in the coming months – perhaps leading to rate cuts sooner than expected.

Hopes for lower global borrowing costs seemed to cheer investors.

Looking ahead, the Fed’s interest rate decision is due on Wednesday, and will most likely be the main catalyst for USD movement this week. The Fed is expected to enforce a hawkish hold, keeping interest rates at 5.5%, which could potentially see USD falter. However, recent Fed commentary has suggested that further hikes later in the year have not yet been ruled out, which may prevent the ‘Greenback’ from plummeting.

Also due out in the US on Wednesday is October’s ISM manufacturing PMI. Expected to remain the same at 49, the manufacturing sector may be continuing to contract. Declines in US manufacturing could knock USD sentiment, denting the US Dollar.

The UK’s final manufacturing PMI is also due on Wednesday. Confirmation of a deep contraction in factory activity could fuel ongoing UK recession fears and hurt GBP.

However, any Sterling movement may be muted ahead of the BoE decision on Thursday, as investors choose to wait on the sidelines rather than make risky bets.

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