Pound US Dollar (GBP/USD) Exchange Rate Climbs as Economists Warn of Recession
(Updated 16:35 30/06/22)
The Pound US Dollar (GBP/USD) exchange rate has climbed higher today. The exchange rate likely made gains off the back of a fall to the core PCE price index, the Fed’s preferred method of inflation. The index fell from 4.9% to 4.7% in May.
Major gains for GBP/USD were likely limited by continued fears of a global economic slowdown, however. Analysts warned that a recession in the US and Europe seemed ‘innevitable’.
In its analysis, Pictet Wealth Management said:
‘A recession over the coming year looks inevitable, in our view, both in the US and in Europe, as the result of rapid monetary tightening and the largest squeeze to real incomes in decades.’
At time of writing the GBP/USD exchange rate is at around $1.2151, which is up around 0.2% from this morning’s opening figures.
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Pound US Dollar (GBP/USD) Exchange Rate Rangebound amid US Treasury Bond Downturn
The Pound US Dollar (GBP/USD) exchange rate is trading within a narrow range today. Major losses for the currency pair are likely being limited by a downturn to US treasury bond yields. On the other hand, any significant gains may be capped after dovish comments from Bank of England (BoE) Governor Andrew Bailey.
At time of writing the GBP/USD exchange rate is at around $1.2145, virtually unchanged from this morning’s opening figures.
Pound (GBP) Muted as Household Incomes Continue to Fall
The Pound (GBP) is seeing subdued trading today after downbeat economic data releases this morning. A cautious stance from Bank of England (BoE) Governor Andrew Bailey may also be continuing to weigh on Sterling.
The final reading of first quarter GDP growth figures could be pushing the currency lower today. Whilst the figures showed that the UK’s economy grew by 0.8%, growth slowed from the previous quarter.
The figures also indicated that real household disposable income fell for the fourth consecutive month. The decline represents the longest run of negative growth for UK households in four decades.
Speaking on the figures, Paul Dales of Capital Economics said:
‘Whilst GDP and consumer spending won’t fall as far as real incomes, it’s pretty clear the economy is going to be very weak for a while and a recession is a real risk.’
Wednesday’s dovish speech from BoE Governor Bailey could also be limiting bets on the Pound today. Speaking in Portugal, Bailey stated that forceful action was not ‘the only thing on the table’ for the central bank.
Additionally, comments from BoE policymaker Swati Dhingra reinforced this cautious approach. Dhingra signalled that a ‘gradual approach’ from the BoE may be necessary owing to the risk of a severe economic slowdown.
US Dollar (USD) Dips Despite Hawkish Powell Comments
The US Dollar is trending lower against some of its riskier rivals this morning amid a downturn in US Treasury bond yields. Major losses for USD could be limited by hawkish Fed comments and global recession fears, however.
A speech from Federal Reserve Chair Jerome Powell yesterday is likely to limit losses for the currency today. Speaking at a European Central Bank (ECB) conference on Wednesday, Powell stated that the Fed would do whatever was necessary in order to prevent a ‘higher inflation regime’. Other Fed policymakers also supported Powell’s stance and the need for more aggressive interest rate hikes.
Powell’s comments, along with other central bank heads, may have also prompted a renewed risk-off mood in the markets. The prioritization of bringing inflation down over eliminating economic harm has led to fresh fears of a global recession in markets.
GBP/USD Exchange Rate Forecast: Will PCE Figures Prompt Fresh Bets on Fed Action?
Looking to the rest of the week for Sterling, a drop to manufacturing sector growth could pull the Pound lower if PMI figures print as forecast on Friday. Additionally, further tensions over the Northern Ireland Protocol could continue to dent confidence in the currency.
For the US Dollar, a forecast climb to the PCE price index later today could push USD higher if investors see it as cause for the Fed to raise interest rates higher. Also today, initial jobless claims are expected to tick lower but overall remain high. Evidence of a tight labour market could also bolster USD.
On the other hand, a drop to personal spending could weigh on USD and cap any significant gains.