The Pound-Dollar rate could come under pressure if UK borrowing rises, while dovish Fed commentary may limit support for the US Dollar.
The Pound US Dollar (GBP/USD) exchange rate was subdued on Monday as central bank dynamics continued to impact the pairing following last week’s policy announcements.
At the time of writing, GBP/USD was trading at $1.3387, down marginally on the day.
Pound to Dollar (GBP/USD): 1.337673 (-0.13%)
Dollar to Yen (USD/JPY): 157.3522 (+0.30%)
DAILY RECAP:
The Pound (GBP) lacked direction on Monday, with a quiet UK data calendar giving Sterling little impetus to make a decisive move.
The currency also remained subdued following last week’s Bank of England (BoE) decision. The central bank left interest rates unchanged but reduced the pace of its bond sales, a move that contributed to some losses for the Pound.
Meanwhile, the US Dollar (USD) initially traded with modest gains on Monday as USD continued to enjoy the afterglow of last week’s Federal Reserve interest rate decision.
In a unanimous vote, the Fed hiked rates for the first time since 2023. Markets increased their bets for further hikes following the decision. This continued to underpin the US Dollar on Monday.
However, the safe-haven currency found itself limited as market risk appetite improved during the European session.
Near-Term GBP/USD Forecast: Jump in Government Borrowing to Pressure the Pound?
Looking forward, Tuesday’s UK data could give the Pound a clearer direction, with the government’s latest borrowing figures likely to attract attention first.
A rise in borrowing during August could put pressure on Sterling by prompting fresh concerns over the health of the public finances ahead of the Autumn Budget.
The Pound could then come under additional pressure when the Confederation of British Industry (CBI) releases its industrial trends orders. If the data points to a sharper deterioration in industrial orders, Sterling may struggle further.
As for the US Dollar, speeches from two Federal Reserve officials could influence the ‘Greenback’. Despite voting for a rate hike last week, policymakers John Williams and Philip Jefferson are both on the more dovish end of the scale. If they indicate that one hike may be enough to tame inflation, the US Dollar could stumble.
Our currency coverage draws on live market data, official economic releases and published bank research.
