GBP/USD Exchange Rate Sinks Below Key Barrier of Resistance
(Updated: 16:30, 5/7/22) The Pound US Dollar exchange rate is in freefall this afternoon. The pairing plunging to its worst levels since March 2020.
The GBP/USD exchange rate fell below the $1.20 barrier as global recession fears rock markets. Sending skittish investors flocking to the safe-haven US Dollar.
This comes as a spike in gas prices has stoked concerns over European energy security and that the Eurozone could be at risk of a recession.
Meanwhile the Pound has also been undermined by the publication of the Bank of England’s latest Financial Stability Report as the bank warned that the UK’s economic outlook has ‘deteriorated materially’.
Original article continues below:
Pound US Dollar Exchange Rate Slumps in Bearish Trade
The Pound US Dollar (GBP/USD) exchange rate is trading with notable losses this morning. The pairing plunging in response to a prevailing risk-off mood.
At the time of writing the GBP/USD exchange rate is trading at around $1.2034. Down roughly 0.6% from this morning’s opening levels.
US Dollar (USD) Soars Amid Recession Fears
The US Dollar (USD) is trading with notable support this morning. Fresh fears regarding a global recession bolstering demand for the safe-haven currency.
Economists are particularly worried by the prospect of a recession in the Eurozone amid fears Russia may soon move to cut off gas supplies to Europe.
Elsewhere ongoing covid outbreaks in China are also stoking recession concerns, with fears that further disruption to supply chains could exacerbate inflationary pressures.
Also buoying USD exchange rates this morning are Federal Reserve rate hike bets. Investors are betting the Fed will deliver several more aggressive rate hikes this year.
These rate hike bets are being fueled by comments from Fed Chair Jerome Powell last week. Powell claimed the US economy can withstand more rate hikes, while also signalling the bank’s priority is to rein in inflation. Even at the expense of US economic growth.
Pound (GBP) Losses Capped by Upbeat Services PMI
An upwards revision to the UK’s latest services PMI have helped to cap the Pound’s (GBP) losses against the US Dollar this morning.
Growth in the service sector accelerated last month according to data published by S&P Global. June’s finalised index was revised up from 53.4 to 54.3.
The surprise uptick in the index is reflecting positively on GBP exchange rates this morning. Although these gains may be tempered by some warnings that the headline figures masked some underlying weakness in the sector.
Analysts warned that the continued uptick in Inflation is hitting discretionary spending. Leading to a sharp drop in new orders.
Tim Moore, Economics Director at S&P Global Market Intelligence, commented:
‘The service sector remained in expansion mode during June, but persistently high inflation has started to dent discretionary spending and negatively influence demand projections across the board. New order growth was the weakest since the national lockdown in early-2021, with survey respondents reporting business and consumer hesitancy in response to the uncertain economic outlook.’
Pound US Dollar Exchange Rate Forecast: Dovish BoE Bailey to Sink Sterling?
The Pound US Dollar exchange rate could face some headwinds later this morning following a speech by Bank of England (BoE) Governor Andrew Bailey.
Bailey will make a speech following the publication of the BoE’s Financial Stability Report. If he echoes the dovish tone he struck last week this could lead to notable pressure on Sterling.
Meanwhile the focus for USD investors will be the publication of the latest US factory order figures. Will an acceleration in order growth reinforce the US Dollar’s gains this afternoon?