Pound US Dollar (GBP/USD) Exchange Rate Muted amid UK Economic Concerns

Pound US Dollar (GBP/USD) Exchange Rate Wavers amid UK Concerns and Hawkish BoE

(Updated 15:45, 11/10/21) The Pound US Dollar (GBP/USD) exchange rate has remained somewhat subdued today after dropping sharply from a two-week high earlier this morning.

Since then the pair has wavered in a narrow range and is currently trading at around $1.3626, down 0.34% from this morning’s high of $1.36722.

The subdued sentiment around the Pound comes amid concerns about the UK’s economic recovery. A report this morning showed that the supply chain crisis is stifling output growth in both manufacturing and services businesses, while the Director General of UK Steel, Gareth Stace, warned that the energy crisis could evolve into an industry crisis (see original article below).

Since then, data from YouGov and the Centre for Economics and Business Research shows that consumer confidence fell to a five-month low last month, as inflation and shortages chipped away at morale.

Sterling’s downside seems to have been limited by talk of an earlier-than-expected rate hike from the Bank of England (BoE) after BoE policymaker Michael Saunders hinted as much over the weekend, with some traders expecting the central bank to increase interest rates as early as December this year.

However, this hawkishness is tempered by concerns that the BoE will make a policy misstep. Deutsche Bank’s monthly investor survey found that 45% of market professionals think the central bank will make a hawkish policy error, while only 20% think it will tighten policy at around the right time.

With these factors pulling on the Pound simultaneously, GBP investors seem to be taking a bearish approach this afternoon.

Original article continues below:

Pound US Dollar (GBP/USD) Exchange Rate Falls amid Warnings from Industry

The Pound US Dollar (GBP/USD) exchange rate is falling today, amid warnings from industry leaders that the UK’s energy crisis could escalate into an industrial crisis.

Meanwhile, a tepid market mood is limiting the US Dollar’s (USD) gains against the Pound (GBP).

Pound (GBP) Down as Economic Worries Grow

The Pound is weakening this morning, as fears over the UK’s supply chain and energy crises continue to weigh on Sterling sentiment.

The latest Business Trends report from accountancy and business advisory firm BDO LLP has shown that supply chain disruption and labour shortages are denting productivity in both the manufacturing and services sectors. According to the report, output growth among UK businesses slowed for the fifth consecutive month in September.

In addition, high inflation and empty supermarket shelves dragged on consumer confidence last month, pulling it down to its lowest level this year, according to professional services network PwC.

Comments from Gareth Stace, Director General of UK Steel, are adding to GBP’s challenges this morning. In an interview on LBC radio, Stace warned that the energy crisis could turn into an industry crisis, with factories forced to halt production due to rising energy costs, if the government did not take action.

Stace said:

‘This is a critical time. The Business Secretary has also said it’s a critical situation, and therefore why is Government just sitting on its hands and doing absolutely nothing at the moment?

‘From my point of view, today, with the reported Government infighting between the Treasury and BEIS, the Prime Minister now needs to bang ministerial heads together, take control and remember that if he does nothing, then his levelling-up ambition will be left in tatters.’

Sterling’s downside may be cushioned, however, by expectations of an early rate hike from the Bank of England (BoE).

Over the weekend, BoE policymaker Michael Saunders commented on the likelihood of an earlier-than-expected rate hike. In an interview with the Telegraph, Saunders said:

‘I think it is appropriate that the markets have moved to pricing a significantly earlier path of tightening than they did previously’.

These hawkish comments initially supported Sterling this morning and may now be limiting GBP’s losses.

US Dollar (USD) Subdued amid Mixed Market Mood

Meanwhile, the US Dollar is muted so far today, amid a lack of US economic data and a lukewarm market mood.

Equity markets are wavering this morning as concerns over China’s Evergrande crisis are causing some anxiety among investors.

The debt-laden Chinese property developer Evergrande, which missed two bond payment deadlines last month, is expected to miss further payments at midnight New York Time on Monday (05:00 BST Tuesday).

Meanwhile, another developer, Modern Land (China), has asked for a three-month extension on debt repayments for a $250m bond due later this month.

Worries that the debt crisis in China’s property sector could pose a contagion risk to other sectors, which in turn would spill out into global markets, seem to be causing some concern among investors today.

However, the overall market mood remains mixed. At the time of writing, the FTSE 100 is up by 0.19% and the European Stoxx 600 is down 0.15%. With this tepid risk sentiment, the safe-haven ‘Greenback’ is struggling to find a clear direction against many of its peers but is able to gain on a weakening Pound.

GBP/USD Exchange Rate Forecast: Will Risk Sentiment Shift?

As the Evergrande debt deadline approaches, we may see market sentiment begin to sour. If so, this could support the ‘Greenback’ and prompt further losses in GBP/USD.

Meanwhile, GBP investors will be keeping an eye on the UK’s headlines. Will more warnings about the UK’s economic crises weigh on Sterling?

Samuel Birnie

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