Pound US Dollar (GBP/USD) Exchange Rate Nosedives to Two-Week Lows
(Updated 16:40 01/07/22)
The Pound US Dollar (GBP/USD) exchange rate plummeted lower today. Investors seemed to favour the Federal Reserve’s hawkish signals of future rate hikes, increasing bets on the US Dollar.
A risk-off mood likely also pushed the exchange rate further down today. Fears of a global recession increased today as rhetoric between the between the West and Russia ramped up. Markets remain concerned that Russia could soon cut off its energy supplies to Europe in response. Additionally, Brexit-related headwinds may have also weighed on the currency pair today.
At time of writing the GBP/USD exchange rate is at around $1.2039, which is down around -1% from this morning’s opening figures.
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Pound US Dollar (GBP/USD) Exchange Rate Slides amid Risk-Off Mood
The Pound US Dollar (GBP/USD) exchange rate is tumbling lower today. A risk-off market mood is likely causing the currency pair to fall. Additionally, a poor outlook for the UK economy may also be weighing on GBP/USD today.
At time of writing the GBP/USD exchange rate is at around $1.2104, which is down around -0.5% from this morning’s opening figures.
US Dollar (USD) Bolstered by Aggressive Fed Rate Hike Bets
A risk-off mood in the markets is helping the US Dollar (USD) to make gains against its rivals today. Renewed fears of a global economics slowdown are prompting increased bets on the safe-haven ‘Greenback’.
The potential for aggressive action from the Federal Reserve may also be helping to bolster USD today. Speaking on Thursday, Fed Chair Jerome Powell reiterated the central bank’s commitment to ensuring that high inflation did not become embedded into the US economy.
Speaking in Portugal, Powell said:
‘The risk is that because of the multiplicity of shocks you start to transition to a higher inflation regime. Our job is literally to prevent that from happening, and we will prevent that from happening. We will not allow a transition from a low-inflation environment into a high-inflation environment.’
Pound (GBP) Falls as Brexit Hits Export Levels
The Pound (GBP) is seeing losses against many of its rivals today. A poor outlook for the UK’s economy could be heaping pressure on the currency. Additionally, a retreat to risk appetite may also be pushing GBP lower.
Losses for the Pound come in the face of reports indicating that the UK government is considering fresh support for UK households. According to The Times, Prime Minister Boris Johnson’s chief of staff Steve Barclay proposed a 20% cut to VAT on Thursday. The potential move comes as inflation in the UK hit 9.1% last month, its highest rate in 40 years.
Recent data highlighting the impact of Brexit may also be weighing on the Pound today. Data from the EU showed a 14% drop in exports to the trading bloc in 2021. A recent poll conducted by Ipsos Mori also found that 45% of Britons think Brexit has made daily life worse for them.
Additional Brexit-related headwinds over the Northern Ireland Protocol may also be causing a drop to GBP today. The UK government has seen widespread criticism after it passed legislation through the House of Commons relating to the agreement. The bill, passed on Monday, seeks to alter elements of the NI Protocol.
GBP/USD Exchange Rate Forecast: Will FOMC Minutes Reinforce Fed’s Stance?
Looking to the week ahead for the Pound, the final reading of June’s PMI for the services sector on Monday could bolster the currency if figures remain unchanged from May’s reading. Aside from this, GBP will see little significant data next week.
Further developments surrounding the Northern Ireland Protocol could also prompt movement in Sterling. It remains to be seen whether the UK government will seek to make further progress with any legislation, or return to the negotiation table.
For the US Dollar, a forecast downturn to JOLTs job opening figures on Wednesday could weaken USD slightly although openings will remain high. FOMC minutes later on Wednesday could push the currency higher however if investors pick up on any hawkish signals.
A forecast fall to Non Farm Payrolls on Friday could also push the US Dollar higher if markets see it as signs of a labour market close to full employment.