Hawkish BoE Supports GBP But USD Holds Firm

The Pound to Dollar exchange rate saw volatile trade following the latest Federal Reserve and Bank of England policy decisions, with Sterling attempting to recover earlier losses.

DAILY RECAP:

The Pound (GBP) fluctuated as investors digested the Bank of England’s latest interest rate decision alongside mixed UK labour market data.

Figures showed unemployment held steady, offering some support to Sterling, but a sharper-than-expected slowdown in wage growth limited the currency’s upside.

The Pound initially struggled before staging a modest recovery.

Support for Sterling came from a hawkish tone struck by the Bank of England.

While policymakers voted to leave interest rates unchanged, the central bank significantly upgraded its inflation outlook.

Officials also warned they stand ready to act if rising energy prices linked to the Middle East conflict lead to more persistent inflationary pressures.

This guidance prompted markets to price in two interest rate increases before the end of the year, helping underpin the Pound.

However, gains were capped by concerns about the broader economic impact of higher borrowing costs and elevated energy prices on the UK economy.

At the same time, a more cautious market mood limited demand for risk-sensitive currencies, including Sterling.

Meanwhile, the US Dollar (USD) remained broadly supported following the Federal Reserve’s policy decision.

The Fed held interest rates steady but raised its forecasts for both economic growth and inflation.

This prompted investors to scale back expectations for interest rate cuts in the near term, supporting the ‘Greenback’.

Although the Dollar struggled to extend its gains during Thursday’s European session, it retained much of its overnight strength.

Near-Term GBP/USD Forecast: Geopolitics and Data in Focus

Looking ahead, market sentiment is likely to remain a key driver of the Pound to Dollar exchange rate.

Developments in the Middle East could continue to influence risk appetite and drive demand for safe-haven assets such as the US Dollar.

On the data front, the Confederation of British Industry’s latest industrial trends orders survey may influence Sterling.

A further deterioration in activity could place modest pressure on the Pound.

Overall, geopolitical developments and central bank expectations are likely to remain the dominant forces shaping GBP/USD in the near term.