Pound US Dollar Exchange Rate Drops

The Pound US Dollar exchange rate (GBP/USD) dropped on Monday, as investors were drawn to the ‘Greenback’ ahead of key data releases.

This risk-averse mood saw the GBP/USD exchange rate fall to around US$1.1548 at the time of writing, a drop of roughly 0.6% from Monday’s opening rates.

US Dollar (USD) Exchange Rates Rally ahead of Fed Interest Rate Decision

Monday saw the US Dollar (USD) rally ahead of a week of key data releases. While markets have already priced in a 75bps rate hike from the Federal Reserve, the US economy returning to growth last week has prompted fresh support for the ‘Greenback’.

Similarly, suggestions that the Fed will go on to slow the pace of rate hikes has also been questioned due to the resilience of the US economy.

Carol Kong, a currency strategist at the Commonwealth Bank of Australia explored this. She stated on Monday: ‘Markets have been kind of expecting a Fed pivot on monetary policy. I think that is too premature, given how resilient the economy has been and particularly how high inflation has been.’

Elsewhere, the ‘Greenback’ enjoyed support on Monday due to its nature as a safe-haven currency. With investors opting to trade cautiously throughout Monday’s session, USD was boosted against most major peers.

Furthermore, weakness in the Chinese Yuan boosted the US Dollar. With the Chinese economic outlook looking bleaker, the ‘Greenback’ saw gains due to the pairing’s negative correlation.

Pound (GBP) Exchange Rates Weaken amid BoE Rate Hike Uncertainty

The Pound (GBP) slumped against most major peers during Monday’s trade, ahead of the Bank of England’s (BoE) rate hike decision on Thursday.

Investors continued to be cautious around the rate hike, as the BoE is expected to carry out this decision without full knowledge of the UK government’s fiscal policy. This is because the fiscal statement, which was due on Monday, was postponed until the 17 November.

With the lack of certainty around the fiscal policy, investors began to expect a smaller rate hike than the previously anticipated 75bps.

James Smith, the Developed Markets Economist at ING expanded upon this. He stated on Friday: ‘The economic dataflow doesn’t provide a clear enough justification for more aggressive tightening. It’s certainly true that the Bank’s own surveys continue to point to chronic staff shortages and wage pressures, and this remains a key concern for the BoE. But the most recent inflation data was mostly as expected, while activity data has clearly deteriorated.’

Elsewhere, UK domestic news continued to weigh on GBP. Controversy over Suella Braverman’s reappointment continued to deepen on Monday, which may have prevented Sterling from making any recoveries.

Pound US Dollar (GBP/USD) Exchange Rate Forecast: Interest Rates in Focus

Looking ahead, with both the Fed and BoE scheduled to release their latest interest rate decisions, the GBP/USD exchange rate may continue with it’s current fall.

With the Fed pivot seeming less likely, investors will pay close attention to the press conference held after the decision, looking for any clues as to future rate hikes. Any hawkish rhetoric may buoy the ‘Greenback’ further.

For GBP, the lack of clarity around the BoE’s interest rate decision may continue to weigh upon Sterling, and a lower than anticipated rate hike may continue to sap investor sentiment for the Pound.