– Written by
Frank Davies
STORY LINK Pound Sterling Forecast: GBP/USD at Three-Month Low amid UK Fiscal Concerns
The Pound US Dollar (GBP/USD) exchange rate fell to a three-month low on Thursday, as growing expectations of Federal Reserve interest rate hikes strengthened the ‘Greenback’.
At the time of writing, GBP/USD was trading at $1.3220, having recovered slightly from a low of $1.3215 but remaining lower on the day.
The US Dollar (USD) held firm on Thursday as markets continued to anticipate more aggressive action from the Federal Reserve to bring inflation under control.
Expectations of further tightening strengthened after Wednesday’s PMI figures comfortably exceeded forecasts, suggesting the US economy could still be running at a strong pace.
Further support for rate hike bets came on Thursday, when initial jobless claims unexpectedly fell.
Markets are now pricing in a greater than 50% probability that the Federal Reserve will raise interest rates by 50 basis points by the end of the year.
The Pound (GBP) remained subdued, as expectations of further Fed rate hikes sent ripples through global bond markets.
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The resulting volatility heightened scrutiny of the UK’s already challenging fiscal position ahead of the Autumn Budget, with reports suggesting the Treasury could reduce its fiscal headroom to avoid having to raise taxes.
Meanwhile, weaker-than-forecast figures from the Confederation of British Industry (CBI) provided another slight drag on Sterling, although the impact was relatively limited.
Near-Term GBP/USD Forecast: US Durable Goods Orders in Focus
Looking ahead, the latest US durable goods orders figures are due on Friday.
A forecast contraction in August could put some pressure on the US Dollar.
However, the ‘Greenback’ may continue to find support if expectations of hawkish Federal Reserve policy sustain demand for the currency.
Risk appetite could also shape the GBP/USD pairing.
As a traditional safe-haven currency, the US Dollar may benefit if investors turn more cautious.
Geopolitical tensions and concerns over rising global borrowing costs could further undermine risk sentiment, potentially lending support to the American Dollar.
With no major UK economic releases scheduled, Sterling is also likely to take its cues from broader market developments, including shifts in risk sentiment, bond market movements and domestic UK headlines.
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TAGS: Pound Dollar Forecasts
