Pound-Dollar could remain under pressure if US services data and payrolls reinforce Fed hike bets, while Bailey risks limiting Sterling support.
The Pound US Dollar (GBP/USD) exchange rate edged lower on Wednesday, striking its worst levels since mid-August as a global bond selloff gripped markets.
At the time of writing, GBP/USD was trading at around $1.3477. Down around 0.3% from Wednesday’s opening levels.
DAILY RECAP:
The US Dollar (USD) firmed against the majority of its peers on Wednesday as the ongoing turmoil in global bond markets saw investors favour the safe-haven currency.
Rising energy prices, persistent inflation concerns and mounting fiscal pressures have driven government bond yields sharply higher across the globe, with many countries now grappling with borrowing costs at multi-month highs amid expectations that most central banks will be forced to tighten monetary policy in the coming months.
Renewed expectations for a Federal Reserve’s interest rate hike later this month is also boosting USD demand, with the odds of a September hike having risen to around 70% since last week.
The Pound (GBP) struggled to attract support on Wednesday as the wider global bond rout sent domestic borrowing costs soaring.
The benchmark 10-year gilt yield hovered at levels not seen since 2008, whilst the 30-year yield pushed to its highest levels since 1998.
While the sell-off reflects a wider international trend, the escalation in UK yields carries unique risks for Westminster. With Chancellor John Healey finalising his Autumn Budget for next month, steeper financing costs threaten to severely erode the Treasury’s fiscal headroom and restrict government spending plans.
Near-Term GBP/USD Forecast: Robust US Services PMI to Boost the ‘Greenback’
Looking ahead, the next catalyst of movement for the Pound to US Dollar (GBP/USD) exchange rate will be the publication of the latest ISM services PMI.
August’s index could help to underpin the ‘Greenback’ as it’s expected to report an acceleration in the US service sector.
Although any resulting movement in USD may be modest as markets await the publication of the latest non-farm payroll report at the end of the session.
For GBP investors, the focus in the second half of the week will be on Bank of England (BoE) Governor Andrew Bailey as he delivers a scheduled speech on Friday.
Bailey could sap Sterling sentiment if he retains his recent cautious bias regarding monetary tightening, as it could dampen bets the BoE will deliver a rate hike later this year.
Our currency coverage draws on live market data, official economic releases and published bank research.
