The Pound-Dollar could strengthen if dovish Fed remarks further reduce rate hike expectations, while improving risk appetite may also support Sterling.
The Pound US Dollar (GBP/USD) exchange rate fluctuated on Monday amid a shifting market mood.
At the time of writing, GBP/USD was trading at $1.3226, down marginally on the day but up from an earlier low of $1.3192.
Pound to Dollar (GBP/USD): 1.320765 (-0.24%)
Dollar to Yen (USD/JPY): 158.05779 (+0.13%)
DAILY RECAP:
The US Dollar (USD) initially strengthened as markets opened at the start of the week, as a risk-off mood boosted demand for the safe-haven currency.
Sentiment soured amid the ongoing crisis in the Middle East, with shipping traffic in the Strait of Hormuz virtually grinding to a halt on Monday following attacks in the vicinity over the weekend.
However, the mood improved as the session unfolded. Markets took encouragement from the recent sharp repricing in Federal Reserve interest rate bets, following Friday’s weak payrolls data.
This pullback in Fed bets also weighed directly on the US Dollar, seeing it quickly trim its initial gains.
Meanwhile, the increasingly risk-sensitive Pound (GBP) slipped against the US Dollar during the early hours of Monday morning amid the risk-off market mood.
Sterling was able to regain lost ground later on, however, thanks in part to the UK’s final services PMI. September’s survey was revised slightly higher, printing at 52.1 versus the preliminary 51.7. Although this was still a slowdown from August’s 52.5, the better-than-expected figures aided GBP.
Near-Term GBP/USD Forecast: Fed Speeches to Dent the Dollar?
Looking forward, two Federal Reserve officials are due to speak on Tuesday – Michelle Bowman and John Williams. Both policymakers are considered to be on the dovish end of the spectrum, so their comments could dent USD, if they suggest that they won’t support an interest rate hike this month.
Meanwhile, the data calendar for GBP is quiet, which may limit movement in the Pound.
Market risk appetite may also influence the GBP/USD exchange rate. A risk-off mood would likely support the safe-haven Dollar, while an improvement in market sentiment could underpin the increasingly risk-sensitive Pound. Any shifts in risk appetite could also drive fresh volatility.
Our currency coverage draws on live market data, official economic releases and published bank research.
