Pound US Dollar Exchange Rate Continues to Fluctuate
The Pound US Dollar (GBP/USD) exchange rate is zigzagging as Rishi Sunak reassures investors that his support package will have minimal effect on inflation.
At time of writing the GBP/USD exchange rate is trading around $1.2627, relatively unchanged from this morning.
Pound (GBP) is Wavering as Market Reacts to Support Package
The Pound (GBP) is trading sideways today as Rishi Sunak hopes to alleviate fears that the £15bn support package would exacerbate inflationary pressures.
In an interview with Sky News, Sunak was asked if the package would have a one percentage point impact on inflation:
‘Much, much less than that. My view is that it will have a minimal impact on inflation.’
Analysts are also cautiously optimistic that the fiscal package will help the UK avoid a recession.
Economists at Deutsche Bank suggest:
‘In total, Chancellor Sunak has now pushed close to 1.5% of GDP in support measures to help households through one of the worst income shocks since the Second World War.
‘The modest lift in GDP should support our view that the UK will just about avoid a technical recession around the turn of the year.’
Meanwhile, the UK-EU impasse over the Northern Ireland protocol drags on limiting the upside potential of the Pound.
With the UK firm on their stance of unilaterally altering the agreement, much to the chagrin of the Europe Union and the US. A trade war is the likely outcome, something that no side wants, likely to weigh heavily on Sterling.
US Dollar (USD) Remains Muted Following Disappointing GDP Release
The US Dollar is softening against its rivals today as the preliminary US GDP report was released yesterday, adding fuel to the fire that the Federal Reserve could pause its rate hike cycle after the proposed 50bps hikes in June and July.
Yesterday’s figures showed the US economy contracted by 1.5% in the first quarter of 2022, worse than the previous estimate of a 1.3% decline.
Doubts are starting to grow about the Fed’s ability to bring inflation under control without plunging the economy into a recession.
Meanwhile the US Dollar is also facing headwinds as a result of a prevailing risk-on mood in addition to falling US Treasury yields.
Pound US Dollar Forecast: Flurry of US Data to Weigh on the Pound?
With no major data for the Pound to look to, all focus will be on the release of several sets of US data, with main focal point being the release of the US Core PCE (Personal Consumption Expenditure) price index, the Federal Reserve’s preferred gauge of inflation.
This could leave the US Dollar on the back foot, as economists predict the index will fall from 5.2% to 4.9% in April, potentially raising additional questions over the Fed’s current tightening cycle.
Meanwhile, in the absence of any notable data, the pound could be left directionless through the end of the session.