GBP/USD Exchange Rate Slumps to 23-Month Low
The Pound US Dollar (GBP/USD) exchange rate is currently trading at its worst levels since May 2020, as a wider market selloff underpins USD demand.
At the time of writing the GBP/USD exchange rate is trading at around $1.2546, virtually unchanged from this morning’s opening levels.
US Dollar (USD) Strengthens in Bearish Trade
The US Dollar (USD) continues to catch bids this morning as skittish investors favour safe-haven assets amid the ongoing market slump.
Equity markets fell sharply yesterday, as investors were rattled by the Federal Reserve’s largest interest rate hike in over two decades.
While stocks initially rallied on the Fed rate decision, before subsequent inflation concerns spooked markets.
Sam Stovall, chief investment strategist at CFRA commented:
‘The Fed is between a rock and a hard place, and because of instant information, investors are experiencing both fear and greed at the exact same moment. Investors realised that by the Fed continuing to take a very measured approach, it could actually allow inflation to remain out of control.’
Further underpinning demand for the US dollar are concerns over the war in Ukraine. Observers warn Russia could use its 9 May victory parade to galvanise support for a formal deceleration of war against Ukraine.
Pound (GBP) Licks Wounds Following BoE Inspired Selloff
At the same time, the Pound (GBP) remains on the back foot this morning after suffering its worst day since the start of the Covid pandemic.
This slump was triggered by some bleak economic forecasts from the Bank of England (BoE), which sparked UK recession fears.
Adding to the pressure on the Pound this morning, is the poor showing by the Conservatives in the UK’s local elections.
Economists at MUFG Bank, comments:
‘The political outlook for the UK could be about to worsen. Results are slowly beginning to come in for the Local elections that took place yesterday and as expected the results at this early stage do not look good for the government.
‘The results won’t force PM Johnson out but will likely weaken his position further and leaves him vulnerable to party dissatisfaction that could create instability and uncertainty into the autumn.’
Pound US Dollar Forecast: Robust US Payrolls to Extend GBP/USD losses?
The Pound US Dollar exchange rate could come under additional pressure this afternoon with the release of the latest US non farm payroll figures.
Economists are forecasting the US economy will have added roughly 400,000 jobs last month, which alongside a fall in unemployment is likely to reflect positively on the US Dollar.
However, the accompanying average earnings release may be the main focus for USD investors. Another bump in earnings would likely reinforce inflation expectations.
Meanwhile, GBP investors may look to speeches from BoE policymakers Hue Pill and Catherine L Mann for greater clarity on the bank’s monetary policy outlook.