Pound US Dollar (GBP/USD) Exchange Rate Wavers amid Increasing Inflationary Fears
The Pound US Dollar (GBP/USD) exchange rate is fluctuating today as weaker-than-expected UK PMI data revived fears of a recession.
At time of writing, the GBP/USD exchange rate is around $1.2545, relatively unchanged from this morning.
Pound (GBP) Struggles as Economic Uncertainty Worsens
The Pound (GBP) continues to weaken against its rivals today after the latest PMI figures printed way below expectations, snapping a three-day winning streak against the US Dollar.
The services sector saw the biggest slump as it contracted to 51.8 this month, a drop from 58.9 in April, and far below expectations of 57. Manufacturing also showed a deceleration of growth, and combined with the services data, reinforced the Bank of England’s (BoE) downbeat outlook and diminished odds of further rate hikes.
The alarming data stoked fears that the UK is heading towards a recession, hampering further support for sterling. Economists at Commerzbank report on the downside pressure on the Pound:
“The positive economic effect of the corona restrictions coming to an end seems to be easing. Instead, the high cost of living is leading to cautious consumer spending.”
“In view of yesterday’s data, it can be assumed that the BoE will continue to sound cautious, which is likely to put pressure on sterling.”
“If the economy continues to provide negative surprises over the coming months the market might further correct its rate expectations to the downside, putting pressure on sterling.”
US Dollar (USD) Zigzags amid Risk-Averse Market
The US Dollar remains resilient against most of its peers today despite the pressure of falling US Treasury bond yields and with the market environment shifting to a more risk-averse mood, limited further losses.
US President Joe Biden’s comments on Taiwan have once again reignited tensions between the US and China. Chinese state media have announced it has recently conducted a military exercise around Taiwan in a show of strength, and a warning, against further interactions between Taiwan and the US.
With the market mood shifting to a risk-off phase, demand for safe-haven currencies has risen, which could provide a modest tailwind for the ‘greenback’.
Pound US Dollar Exchange Rate Forecast: Flurry of Fed Talks and US Data to Weigh on Pound?
Without any major data for the UK due out this week, all eyes will be on the Federal Open Market Committee and the release of the May policy meeting minutes later today. A possible 75bps rate hike in July could well be on the table, and any further hawkish comments could weigh on the Pound.
Another potential headwind for GBP USD exchange rate could be the release of US durable goods data later in the day. Despite a drop from the previous month, a 0.4% increase is still expected.
Sue Grey’s report on ‘Partygate’ is due to be published today, as the UK government braces for ‘quite critical’ scrutiny, potentially influencing movement of the Pound.