Pound US Dollar Exchange Rate Slumps on UK Fuel Crisis

UPDATE: 16:15 28-9-2021 GBP/USD Exchange Rate Crashes to 8-Month Low

The Pound US Dollar exchange rate plummeted over 1% to its lowest levels this year during today’s session, hitting lows of $1.3532.

GBP exchange rates dived as the UK petrol shortage crisis continues to fuel economic growth concerns, and the safe-haven US Dollar strengthened amid a global risk-off mood.

Rising inflationary pressure in the UK has prompted the Bank of England (BoE) to signal interest rate hikes and tighter monetary policy, boosting the Pound yesterday. However, some economists fear the UK’s supply chain issues and energy crisis will continue pushing up prices and hit consumer confidence and economic recovery, which has driven Sterling dramatically lower today.

Meanwhile, the US Dollar has been underpinned by safe-haven demand driven by global risk-off trade and strengthening US Treasury yields.

Original article continues:

Pound US Dollar (GBP/USD) Pressured by UK Fuel Shortages

The UK’s fuel shortage crisis has dented the Pound US Dollar (GBP/USD) exchange rate today.

Despite making gains yesterday after Bank of England (BoE) governor Andrew Bailey reiterated the bank’s plans for tighter monetary policy and expected interest rate hike early next year, the Pound has dipped over 0.6% to $1.3610, below the week’s opening levels.

Pound Slides amid UK Fuel Crisis

GBP exchange rates are suffering today against the backdrop of fuel shortages across the UK as the resulting disruption threatens UK economic activity and has pushed petrol prices to an 8-year high.

With queues and shortages continuing today, the UK government has put the army on standby to deliver fuel and made more short-term visas available for overseas workers to address the issue of an HGV driver shortage.

The fuel shortages come amid a mounting energy crisis and CO2 shortages that affected food production and medical supplies, putting Sterling under pressure last week.

The fuel price rise will also likely push inflation higher in September as motor fuel makes up about 2.7% of the UK’s consumer price index (CPI) basket, potentially weighing on the Pound even more.

The Pound US Dollar exchange rate had made gains yesterday after BoE Governor Andrew Bailey reiterated that a UK interest rate rise in early 2022 is becoming more likely due to worsening inflationary pressure.

Bailey said:

“Recent evidence appears to have strengthened that case [for an increase in interest rates] but there remain substantial uncertainties and we are monitoring the situation closely.”

However, the UK fuel crisis has wiped out yesterday’s GBP/USD exchange rate gains and sent the pairing falling.

US Dollar Buoyed by Risk-Off Trade

The US Dollar is strengthening across the board so far today as a global risk-off mood boosts safe-haven demand for the currency.

Global market mood has soured as energy crises hit economies around the world. Europe is suffering from natural gas shortages, while reports of power outages in China due to limited coal supply is causing delays in factory production, fuelling worries of slowing growth and in turn risk-off trade.

In addition, rising US Treasury yields have driven USD exchange rates higher following the Federal Reserve’s signal that it would taper its bond-buying programme after the Fed interest rate decision last week.

USD exchange rates received support yesterday from the latest US durable goods orders data for August. The better-than-expected figures revealed 1.8% order growth, up from 0.5% in July.

Pound US Dollar Forecast: Market Sentiment and High-Impact US Data to Drive USD

The Pound US Dollar exchange rate could continue to come under pressure through the week as UK fuel shortages and energy crisis appear unlikely to ease in the immediate future.

Upcoming speeches from BoE Governor Andrew Bailey may limit GBP losses if he provides more firm commitment to raising interest rates early next year, but the fuel crisis will likely be the key driver in the Pound.

Meanwhile, with the prevailing risk-off mood in global markets, the US Dollar will continue benefitting from the safe-haven demand.

High-impact US data towards the end of the week could drive additional movement in USD exchange rates.

September’s ISM manufacturing PMI is forecast to have remained in strong growth territory this month and the PCE price index – the Fed’s preferred measurement of inflationary pressure – is expected to have remained stable in August at 4.2%.

Andrew Roberts

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