Pound US Dollar Exchange Rate Steadies after Week of Losses

UPDATE 16:45 30-9-2021 Pound US Dollar Exchange Rate Holds Modest Gains

The Pound US Dollar exchange rate has held the modest gains the pairing made today, up approximately 0.3% on the European session’s opening levels but still below $1.35.

Upwardly revised UK GDP data for Q2 to 5.5% appears to have underpinned Sterling support, but the UK’s fuel shortage crisis rumbles on and has limited GBP/USD gains.

According to the Petrol Retailers Association chairman Brian Madderson supplies are yet to improve, commenting:

“The surge in demand appears to be continuing. There’s been no easing off of the pressure from drivers wanting to refuel whenever they can, wherever they can.”

Meanwhile, the US Dollar’s rally was halted today after market sentiment improved, in turn weighing on safe-haven demand for USD.

Pound US Dollar (GBP/USD) Exchange Rate Stabilises after Week of Losses

The Pound fell further against the US Dollar yesterday as supply chain problems and surging energy and fuel prices heightened stagflation fears in the UK economy.

GBP/USD hit its lowest level since December 2020 and fell below $1.35, with the pairing dropping 3 cents since the start of this week’s session.

After another day of losses yesterday, the Pound US Dollar (GBP/USD) exchange rate has stabilised slightly and is trading at $1.3462 this morning.

Pound (GBP) Stems Losses as UK GDP Upwardly Revised

While the Pound is muted so far this morning, UK economic concerns still hang over GBP exchange rates.

Bank of England (BoE) Governor Andrew Bailey reiterated UK economic growth concerns late on Wednesday afternoon.

Bailey warned that the UK’s recovery to pre-pandemic levels will take longer than anticipated as supply chain problems derail growth, commenting:

“I expect us to be back to the pre-pandemic level in the early part of next year, possibly a month or two later than we thought we would be at the start of August.

“The big challenge now is how we can get through this period of uneven growth, supply-side bumps and come out of the other side with both a smoother recovery and balance of supply and demand.”

However, Sterling has received limited support this morning as UK second quarter GDP growth was upwardly revised from 4.8% to 5.5%.

The positive revision shows the UK economy rebounded better-than-expected as the economy reopened in spring.

Meanwhile, the UK government again said the fuel crisis is easing, with Chief Secretary to the Treasury Simon Clarke describing the situation as ‘back under control.’

US Dollar (USD) Steadies after Bullish Run

The US Dollar soared to multi-month highs on Wednesday but its bullish run appears to have slowed so far today.

Improving risk appetite and a modest pullback in US Treasury yields appear to be capping USD exchange rate gains.

However, market mood may sour again, potentially supporting safe-haven demand for USD. US Congress is yet to make an agreement on the debt ceiling and the government could miss debt repayments in mid-October.

In addition, Federal Reserve Chair Jerome Powell joined other central bank leaders yesterday by saying supply chain bottlenecks are holding back economic recovery:

“The combination of strong demand for goods and the bottlenecks has meant that inflation is running well above target.

“We expect that it will continue to do so in the coming months before moderating as bottlenecks ease.”

Pound US Dollar Outlook: Will the Pound Extend its Losses?

The Pound looks set to remain vulnerable to the energy and fuel crises, and supply chain fragility that has hung over Sterling recently due to concerns over the UK’s economic recovery. Rising stagflation fears in the UK recovery look likely to weigh on GBP.

Another threat to GBP exchange rates at the end of the week is the UK furlough scheme ending. Approximately 5% of the UK workforce is still on the government support programme, with uncertainty whether that number of the labour force will return to work potentially weighing on GBP exchange rates.

Meanwhile, the final US GDP growth reading for the second quarter could drive movement in the ‘Greenback’. Forecasts expect a 6.6% reading, but any upward revision could trigger more movement in the US Dollar.

Falling US jobless claims this week could also lend support to the US Dollar. Claims are expected to have fallen to 335,000 last week, down from 351,000.

Andrew Roberts

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