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Pound / Dollar Exchange Rate At Six-Week Best

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The Pound US Dollar (GBP/USD) exchange rate surged to a six-week high during Wednesday as markets remained optimistic about the new UK Prime Minister Rishi Sunak.

At the time of writing, GBP/USD was trading at around $1.1575.

Pound (GBP) Exchange Rates Strong as Sunak-Inspired Rally Continues

The Pound (GBP) extended its rally on Wednesday as the appointment of Rishi Sunak as the new UK Prime Minister continued to buoy British markets.

Sunak won the Conservative leadership election on Monday and entered Number 10 on Tuesday, a development that cheered GBP investors.

Some traders had feared that another leadership contest could extend political uncertainty in the UK and widen divisions within the Tory party, so Sunak’s quick victory came as a relief.

In addition, Sunak is seen as a stabilizing, level-headed figure, with experience running the Treasury through the economic shock of Covid and a commitment to fiscal responsibility. Following former PM Liz Truss’s calamitous mini-budget last month, markets breathed a sigh of relief as Sunak took the helm of the UK government.

Investors were further reassured by the PM’s maiden speech, in which he vowed to ‘fix’ the ‘mistakes’ made by his predecessor.

bannerHis cabinet reshuffle brought together experienced ministers alongside rising talents, with different parts of the Conservative Party represented, in order to foster credibility in the markets and unity within the party.

On Wednesday, markets accepted the news that the government would delay the Halloween fiscal statement. As the imminent danger of the mini-budget has passed, the statement is far less urgent. Investors were pleased that Sunak wanted to consider fiscal policy carefully rather than rush through half-baked ideas.

US Dollar (USD) Exchange Rates Extend Decline as Markets Scale Back Fed Expectations

Meanwhile, the US Dollar (USD) suffered further losses. An improving market mood had been weighing on the ‘Greenback’ from Tuesday, as had falling US Treasury yields.

A recent report that Federal Reserve policymakers were considering a slower pace of interest rate rises following the next meeting continued to dampen rate hike expectations, along with Tuesday’s sharp drop in US consumer confidence.

On Wednesday, US Treasury yields – often an indicator of rate hike expectations – continued their decline, dragging the US Dollar lower.

This softening of interest rate rise bets was further fueled by the Bank of Canada’s (BoC) rate decision. Rather than raising rates by 75 basis points, as markets expected, policymakers at the BoC opted for a smaller half-point hike.

This – along with optimism about the UK’s financial stability – added to an improving market mood, thereby putting further pressure on the safe-haven ‘Greenback’.

GBP/USD Exchange Rate Forecast: US Data to Boost Fed Rate Hike Bets?

Looking ahead, the afterglow of Sunak’s appointment as PM could begin to wear off. The UK still faces a dire economic situation, with many data releases indicating that the country is already in a recession.

Thursday’s distributive trades data from the Confederation of British Industry (CBI) could exacerbate fears, as markets expect it to show a slump in retail sales.

Meanwhile, the latest US economic data is forecast to show some improvement. Economists expect US durable goods orders to have recovered by 0.6% in September, following August’s 0.2% decline.

Additionally, the preliminary US GDP growth rate for the third quarter is expected to show a return to growth, with forecasts predicting a 2.4% expansion.

If US data comes in strong, it may prompt a resurgence in Fed rate hike bets and thereby boost the Dollar.