GBP/USD Extends Downturn on Successive UK Headwinds
(Updated 16:15, 01/09/2022) The Pound US Dollar (GBP/USD) exchange rate continues to trend down the afternoon as risk aversion intensifies and experts forecast a ‘bleak winter’ for UK households.
Upbeat US data buoyed the ‘Greenback’ earlier in the session, as initial jobless claims were fewer than expected and ISM manufacturing data printed at 52.8 rather than 52 as forecast.
Subsequently, fears of a global recession continue to pressure perceived-riskier currencies against their safe-haven counterparts, denting Sterling sentiment while drawing support to the US Dollar.
European stock markets reflect weakening risk appetite, as the FTSE 100 index of blue-chip shares hits a 6-week low.
Meanwhile, the Pound faces UK-specific headwinds on downbeat analyses of the UK’s economic situation. Susannah Streeter of Hargreaves Lansdown observes:
‘Grim forecasts about poverty spreading across the UK this winter highlight the deepening woes for the UK economy. With such a bleak winter ahead, the pound has been pummelled to fresh lows against the dollar, with sterling dipping below $1.16, to $1.157.
This latest drop has rounded off a torrid month for the pound which has fallen by more than 5% against the dollar in August.’
Original article continues below:
Pound US Dollar Exchange Rate Plummets as Pound Faces Energy-Inspired Headwinds
The Pound US Dollar (GBP/USD) exchange rate continued to trend lower overnight as cost-of-living headwinds weighed upon Pound (GBP) sentiment. Meanwhile, the US Dollar (USD) was buoyed by hawkish expectations for the Federal Reserve bank.
At the time of writing, GBP/USD is trading at $1.1594, virtually unchanged from today’s opening levels.
Pound (GBP) Subdued by Risk Aversion, Energy Crisis
The Pound has paused its general downtrend this morning, following a steep drop through yesterday’s session on cost-of-living pressures and political volatility.
A combination of downbeat economic forecasts and uncertainty regarding the government’s response to rising energy prices dented Sterling sentiment and continues to cap gains for the currency today.
The Pound struggles to trend decisively higher as external factors alternately apply headwinds and tailwinds. While the resolution foundation forecasts that the UK’s living standards crisis will persist well into 2023, negative repercussions for GBP are offset by a new proposal to tackle rising energy bills.
Stephen Fitzpatrick, the boss of Ovo Energy, has put forward a ‘progressive’ scheme which would provide greater support for poor households. Commenting on his plans, Fitzpatrick said:
‘The scale of the shock of the recent price rise this winter threatens to tip the economy into a deep recession and will be catastrophic for millions of low income households. It is right that we find ways to smooth further price increases in the short term.
But this scheme can’t be open-ended and unlimited. It should be progressive just like the tax system.’
Until a new Prime Minister is appointed, the government cannot accept any of the schemes being put forward, limiting the positive impact of today’s news.
US Dollar (USD) Wavers ahead of Key Data
The US Dollar has attracted some support this morning on account of an overall risk-off mood and upbeat expectations for the Federal Reserve’s policy tightening schedule.
Some uncertainty over whether the Fed will hike interest rates by 50bps or 75bps this month limits gains – but overall, the prospect of aggressive forward action supports bullish momentum among USD investors.
Looking ahead, markets await the release of August’s ISM manufacturing PMI for further trading impetus. The index is widely expected to drop from 52.8 to the marginally smaller 52, potentially inspiring headwinds this afternoon.
However, USD performance remained generally positive yesterday in spite of weaker-than-expected employment data and may likewise resist downward pressure today if external factors remain supportive.
Also coming up in the docket is last week’s jobless claims report. If the number of people applying for unemployment benefits in the US rose as forecast, the ‘Greenback’ could face additional headwinds.
Nevertheless, risk-off sentiment is likely to persist amid fears of a global recession and apparent weakness in China’s manufacturing sector. Thus, USD should continue to attract safe-haven support.
Pound US Dollar Exchange Rate Forecast: US Data to Inspire Trading?
A lack of significant UK data leaves the Pound US Dollar (GBP/USD) exchange rate to trade on economic data from the US.
Simultaneously, contextual factors such as the UK’s cost-of-living crisis and downbeat growth forecasts are also having a significant impact upon the Pound at the moment.
Consequently, the exchange rate ought to trade on a combination of stimuli through the remainder of today’s session, potentially buoyed by weak US data but likely to miss significant tailwinds due to living cost concerns.