(Updated 16:30 13/05/22)
The Pound US Dollar (GBP/USD) exchange rate ticked upward today. Major gains for the currency pair were likely limited by pessimism surrounding Sterling’s long-term prospects.
A major fall to US consumer confidence may well have been the cause of the uptick to the currency pair, however. The index hit its lowest point since May 2011. Consumer fears that inflation is set to climb even higher and impact prices was cited as the main driver.
At time of writing the GBP/USD exchange rate is at around $1.2234, which is up roughly 0.2% from this morning’s opening figures.
Pound US Dollar (GBP/USD) Exchange Rate Rangebound as Risk Appetite Returns
The Pound US Dollar (GBP/USD) exchange rate is trading with a narrow range today amid a pullback in the US Dollar (USD). USD hit a two-year high yesterday which may be limiting more significant bets on the currency. A continued poor outlook for the UK economy may also be pulling the currency pair lower, as well as a mild recovery to risk appetite.
At time of writing the GBP/USD exchange rate is at around $1.2204, virtually unchanged from this morning’s opening figures.
Pound (GBP) Drops amid Early Recession Fears
The Pound (GBP) is continuing to fall against its rivals amid a pessimistic economic outlook for the UK. Further developments surrounding the Northern Ireland Protocol may also be pulling Sterling lower today.
A surprise contraction in the UK economy on Thursday has heightened fears that the UK could fall into an early recession. The country’s cost-of-living crisis has continued to bite into household spending. Soaring energy and fuel costs have limited big-ticket spending. The GDP figures saw renewed calls for the government to act in order to support consumers through emergency measures.
Rain Newton-Smith, chief economist at the Confederation of British Industry (CBI), said:
‘The economy barely kept its head above the water during a volatile start to the year, but times look set to get that bit tougher. Cost pressures and rising prices have tightened their grip, with both businesses and households feeling the pinch. The end result is a weaker economic outlook.’
Rumours that UK Chancellor Rishi Sunak could announce an emergency windfall tax on energy companies could help bolster GBP, however.
Fears of an escalation between the UK and EU over the Northern Ireland Protocol may keep the Pound (GBP) suppressed today. Reports have indicated that US congress representatives will be flying to London next week. This comes amid concerns that the UK could jeopardise the Good Friday Agreement.
The move comes after UK Foreign Secretary Liz Truss announced that the UK government would put legislation before parliament that could undermine parts of the NI protocol. Officials in Brussels were quoted as being ‘flabbergasted’ by the timing of the move.
US Dollar (USD) Slides after Two-Year Highs
The US Dollar (USD) is dropping against its rivals today amid a corrective pullback in the currency. A risk-on trading mood is may also be limiting gains for the safe-haven ‘Greenback’ today.
USD may be underpinned today by rate hike bets from the Federal Reserve. The Fed raised interest rates by 0.5% last week, its largest move since 2000.
More rate hikes are expected from the central bank with Fed Chair Jerome Powell stating that the Fed was ‘moving expeditiously’ to bring high inflation down.
A further tightening in the US labour market could also support gains for the currency today. Initial jobless claims hit their highest level in three months in figures released on Thursday.
GBP/USD Exchange Rate Forecast: Will Fed Continue Hawkish Path?
There is no further significant data for the Pound (GBP) today. The UK government’s response to the cost-of-living crisis may continue to dominate movement in the currency. Negotiations between the UK and EU over the NI protocol may also dent confidence in GBP further should they prove unsuccessful.
For the US Dollar (USD), a forecast dip in May’s consumer sentiment could pull USD lower. On the other hand, these losses could be limited by a speech from Fed policymaker Neel Kashkari. If Kashkari echoes the central bank’s rate hike prospects then it could lift the currency.