Pound US Dollar (GBP/USD) Exchange Rate Steady as UK Leaves Covid Rules Unchanged
The Pound US Dollar (GBP/USD) exchange rate is holding above $1.35 near seven-week highs during Wednesday’s session after strengthening through post-Christmas trade.
Amid a risk-on market mood, the Pound remains supported by the UK government’s stance of avoiding tighter Covid-19 restrictions.
Pound (GBP) Buoyed by UK Economic Optimism
The Pound (GBP) is holding most of its recent gains during today’s session on optimism the UK will avoid significant economic disruption from surging Covid-19 infections.
Comments from Prime Minister Boris Johnson have supported Sterling sentiment, after he said England can ‘ride out’ the current coronavirus wave.
Despite daily Covid-19 case rates soaring to record highs and the NHS coming under significant pressure, Johnson said measures would remain unchanged and there is a ‘good chance’ tighter restrictions would not be needed.
The UK’s booster vaccine rollout is also a source for optimism that the UK economy can avoid disruption, with over 34 million doses given across the UK and meeting the government’s target of offering a booster jab to all eligible adults.
Sterling has received further support from expectations for the Bank of England (BoE) to raise interest rates again at its next monetary policy meeting in February.
Investors are increasingly pricing in that the BoE will hike rates in an attempt to bring down inflation as the UK looks to weather the surge in coronavirus cases.
Looking ahead, finalised UK services PMI data released on Thursday may dent GBP exchange rates. Forecasts point to the index indicating a sharp slowdown in the sector, although any further downward revisions caused by Omicron jitters impacting hospitality and retail over Christmas may cause the Pound larger losses.
US Dollar (USD) Struggles ahead of FOMC Minutes
The US Dollar (USD) has come under significant pressure during the early part of Wednesday’s session as a risk-on market mood weighs on safe-haven demand for the ‘Greenback’.
However, far better-than-expected ADP employment change data may help the US Dollar to reverse some of its losses.
Private businesses hired 807,000 employees during December, beating forecasts of 400,000 and up on November’s 505,000.
The upbeat employment figures may push US Treasury yields higher and fuel bets for more aggressive monetary policy tightening from the Federal Reserve.
Despite retreating slightly yesterday, a recent rise in US Treasury yields has provided the US Dollar with some support and limited losses, as investors bet on expectations for the Federal Reserve to begin raising interest rates.
The Federal Reserve Open Market Committee (FOMC) minutes from its latest policy meeting published this evening will likely drive significant movement in USD exchange rates.
Investors will look for more insight as to when the Federal Reserve will likely hike rates for the first time in 2022, and for any hints on how quickly the central bank will continue tightening monetary policy throughout the year.
US non farm payrolls released on Friday may provide the US Dollar with a further boost, as forecasts point to an impressive 400,000 jobs added to the US economy last month.
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