GBP/USD rebounds above $1.20 on Fed Powell comments

Philip McHugh February 8th 2023 - 2 minute read

The US dollar fluctuated on Tuesday, with the currency’s initial gains being reversed following comments from Federal Reserve Chair Jerome Powell.

The pound, meanwhile, is ticking higher this morning, with GBP/EUR stable at €1.1248 and GBP/USD climbing to $1.2096. GBP/CAD is buoyed at CA$1.6175, while GBP/AUD and GBP/NZD hold steady at AU$1.7318 and NZ$1.9089, respectively.

Coming up, will a hawkish consensus from Federal Reserve policymakers help to propel the US dollar higher today?

What’s been happening?

The US dollar trended broadly higher through yesterday’s European trading session.

This upside in USD was supported by a souring of sentiment through the US session as well as a rebound in US Treasury yields.

However, the ‘greenback’ then relinquished most of these gains following a speech by Fed Chair Jerome Powell later in the evening. While Powell confirmed the bank would continue to tighten its monetary policy, USD exchange rates weakened as he suggested 2023 will see a ‘significant decline’ in inflation.

This earlier uptick in the US dollar pulled the GBP/USD exchange rate below $1.20 for the first time in 2023 as the pound struggled to attract support.

Sterling sentiment remained muted on Tuesday despite comments from Bank of England (BoE) Chief Economist Huw Pill in which he claimed the bank is ‘prepared to do more to get inflation back to target.’

At the same time, the euro was pressured yesterday following the publication of Germany’s latest industrial production figures.

A larger-than-expected decline in factory output in December raised concerns over the trajectory of the Eurozone’s largest economy and left the single currency struggling to find support.

What’s coming up?

USD investors are likely to look to a series of Fed speeches for fresh impetus today. Could a broadly hawkish consensus help to underpin demand for the US dollar?

In the absence of any notable EUR data releases, developments in Ukraine may act as the main catalyst of movement for the euro today.

Growing signs that Russia is preparing to launch a massive new ground offensive in the second half of February could act as a headwind for the single currency.

GBP data is also thin on the ground today, potentially leaving the pound to trade without any strong directional bias.

Written by
Philip McHugh

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