GBP/USD Exchange Rate Stumbles as Markets Spooked by Ukraine Crisis
(Updated: 15:15, 24/1/22) The Pound US Dollar exchange rate extended its losses this afternoon as an apparent flight to safety sees investors flock to the safe-haven ‘Greenback’.
This continues to be primarily driven by fears over a potential invasion of Ukraine by Russia, but is also being reinforced by a wider selloff in equity markets.
USD demand also appears to being buoyed by expectations ahead of the Federal Reserve impending interest rate decision, amidst hopes for some hawkish forward guidance from the US central bank following its first policy meeting of 2022.
However further upside in the US Dollar appears to be capped by the release of the latest US PMI figures as Markit reports the US service sector came close to stalling this month.
Meanwhile, the Pound US Dollar exchange rate continues to be undermined by the UK’s own PMI releases as well as some political uncertainty as criticism against Boris Johnson continues to grow.
Original article continues below:
Pound US Dollar Exchange Rate Dented by Underwhelming UK PMIs
The Pound US Dollar (GBP/USD) exchange rate is on the defensive this morning, in response to some weaker-than-expected PMI releases from the UK.
At the time of writing the GBP/USD exchange rate is trading at around $1.3496, down roughly 0.4% from this morning’s opening levels.
Pound (GBP) Slips as UK Economic Activity Slumps to 11-Month Low
The Pound (GBP) is sliding against the US Dollar (USD) this morning after the UK’s latest PMI figures printed below expectations.
According to data published by IHS Markit the manufacturing PMI slipped from 57.9 to 56.9 this month, while more worryingly, the services PMI dropped from 53.6 to 53.3, versus forecasts it would climb to 54.8.
The shock drop in the services PMI hit the Pound particularly hard this morning as the sector accounts for such a large percentage of the UK economy.
This drop appeared driven primarily by a slowdown in hospitality and other consumer facing businesses as despite the government’s decision not to impose stricter restrictions in England, concerns over the Omicron Covid variant hit confidence.
Duncan Brock, Group Director at CIPS, said:
‘Companies in the private sector experienced the slowest rate of expansion overall since spring 2021 as January’s data offered a mixed picture from all the sectors. Though professional and financial services in particular saw a resurgence in activity, hospitality and travel firms took another body blow as the marketplace stagnated.’
The underwhelming reading will raise concerns the about the trajectory of the UK economic recovery at the start of 2022 and leave the Pound on the back foot through today’s session.
US Dollar (USD) Strengthens in Skittish Trade
At the same time, the US Dollar (USD) is drawing support this morning amidst a clamour for safe-haven currencies.
This comes as markets grow increasing concerned conflict could break out in Europe as Russia continues to build up its military forces along its border with Ukraine.
On the other hand, the US Dollar’s gains are also being tempered this morning by a modest pullback in US Treasury yields.
Pound US Dollar Exchange Rate Forecast: All Eyes on the Fed
Looking ahead, a primary catalyst in the Pound US Dollar (GBP/USD) exchange rate through the first half of this week will undoubtedly be the Federal Reserve’s impending policy meeting.
No policy changes are expected from the Fed when it delivers its first interest rate decision of 2022 on Wednesday, but USD investors will be paying close attention to the US central bank’s forward guidance.
The Fed is seen as likely to hike interest rates up to four times this year, with the US Dollar poised to soar if policymakers signal plans to more aggressively tighten its monetary policy this year.
In the meantime, GBP investors will be on the lookout for Sue Gray’s report into the Downing Street ‘partygate’ scandal, as the internal investigation is expected to be published sometime this week.
The report is seen as being key in determining Boris Johnson’s future as Prime Minister, with the Pound US Dollar exchange rate likely to be infused with some notable volatility if it leads to a vote of no confidence in the PM.