Pound US Dollar (GBP/USD) Exchange Rate Slips Below $1.22 to Strike Two-Year Low 

Pound US Dollar Exchange Rate Retreats on Lacklustre UK GDP Release 

The Pound US Dollar (GBP/USD) exchange rate stuck a fresh two-year low this morning, in response to a disappointing UK GDP release. 

At the time of writing the GBP/USD exchange rate is trading at around $1.2197, down roughly 0.3% from this morning’s opening levels. 

Pound (GBP) Softens as Disappointing UK GDP Stokes Recession Fears 

The Pound (GBP) is on the defensive this morning as the UK’s latest GDP figures printed below expectations. 

Data published by the Office for National Statistics showed the UK economy grew by 0.8% in the first quarter of 2022. This was down from 1.3% at the end of last year and missed expectations for a 1% expansion. 

However even more worrying for GBP investors were the accompanying month-on-month GDP figures. Growth unexpectedly contracted in March after stalling in February. 

March’s contraction is weighing on the Pound US Dollar exchange rate this morning as it stokes concerns the UK could be at risk of a recession this year. 

Caroline Simmons, UK Chief Investment Officer at UBS Global Wealth Management, comments: 

‘Today’s figures will only fuel concerns for the growth outlook for coming quarters. 

‘In particular, there is growing potential for UK GDP to be negative in the second quarter, which is in part due to the consumer squeeze from energy price rises.’ 

On the other hand, the Pound’s losses look to be capped in the wake of comments from Bank of England (BoE) policymaker Dave Ramsden. 

Ramsden claimed the BoE’s forecasts aren’t talking down the UK economy. But also suggested the ‘BoE hasn’t yet gone far enough on rate hikes.’ 

US Dollar (USD) Bolstered by Bearish Trade 

The US Dollar (USD) is strengthening this morning. With the Dollar Index (DXY), which measures the US Dollar against a basket of its peers, climbing to its highest levels since 2002. 

The latest upside in the ‘Greenback’ comes amid a prevailing risk-off mood. Another sharp slump in equity markets on Wednesday and fears of a global recession are weighing on risk appetite. 

The US Dollar is also being supported by aggressive Federal Reserve rate hike bets. Despite recent comments from Fed Chair Jerome Powell pushing back a 75 bps hike. USD investors appear convinced the Fed will accelerate its current tightening cycle. 

Pound US Dollar Forecast: Slide in US Consumer Sentiment to Weaken USD Exchange rates? 

The Pound US Dollar exchange rate could find some support at the end the week, with the publication of the latest US consumer confidence figures. 

The University of Michigan’s consumer sentiment index is expected to report a modest drop this month. Concerns are likely to be centred on surging inflation as well as uncertainty ahead of more Fed rate hikes. 

However, any downside in the US Dollar may be limited so long as risk-off flows continue to underpin safe-haven demand. 

Meanwhile, the Pound could struggle on Friday. Ongoing concerns over the UK’s economic trajectory, combined with fresh Brexit uncertainty could further sap Sterling. 

Matthew Andrews

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