GBP USD Exchange Rate: The Month Ahead September 

GBP USD Exchange Rate: The Month Ahead September 

The pound, which mounted a rally against the dollar during the back end of July, spent the first half of August largely drifting lower. 

The pace of its fall ramped up when data sullied the UK economic outlook and declining risk appetite boosted demand for the safe-haven dollar. 

The latest consumer prices print, which showed inflation rose into double digits territory, piled pressure on the Bank of England (BoE) to cool prices, intensifying fears of a sharp economic slowdown. 

By 23 August, GBP USD slipped to 1.1718, its lowest since March 2020. This event marked a notable decline for the pair, which started the month in the 1.22 range. 

A chorus of hawkish comments from US Federal Reserve officials supported the dollar throughout the month. Most influential was Chair Jerome Powell’s opening speech at the Fed’s annual Jackson Hole central banking conference. 

The US currency strengthened on Powell’s view that the domestic economy will need tight policy “for some time” before runaway inflation is reined in, although he did not indicate how high-interest rates might rise. 

Conservative leadership race in focus for the pound

The Conservative Party leadership race to replace Boris Johnson as Prime Minister is in its dying embers, with the winner announced on Monday 5 September – the date Parliament returns from its summer break. 

Current Foreign Secretary Liz Truss topped the polls throughout the race’s final stage, tipped to beat her opponent Rishi Sunak by a wide margin. The future Prime Minister will face a fight to cool red-hot inflation without further damaging the economy, with a recession on the horizon later this year, according to the BoE. 

The UK central bank will announce its latest interest rate decision on 15 September, having raised borrowing costs by 50 basis points (bps) in August – the most in 27 years – to smother inflation which stands at a 40-year high of 10.1%. 

The UK consumer price index hit the headlines on 15 September. Now in double digits, the inflation rate is expected to continue accelerating, with economists suggesting it could surpass 18% next year. 

Interest rate announcement in focus for the dollar 

The Fed will announce its interest rate decision on 21 September, following its two-day meeting of monetary policymakers. Hawkish chatter from US central bank officials during August beefed up expectations that borrowing costs will lift even higher – potentially reaching the 3.75%-4% range by March. 

Following Powell’s remarks in Jackson Hole on 26 August, investors increased bets on a third straight 75 bps rate hike at the Fed’s September policy meeting to curb inflation. 

The US consumer price index (CPI) will release on 13 September. US inflation fell to 8.5% in July but remained close to a multi-decade high. Will the July reading provide further signals that inflation has finally topped out in the US, following other indicators that have suggested price rises are moderating? 

The influential US nonfarm payrolls report arrives on Friday, 2 September. The data for July will likely deliver 300,000 jobs, which would mark a fall from the previous month when the US economy added 530,000 jobs. 

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