The Pound US Dollar (GBP/USD) exchange rate is currently trading at a two-year low. Clear risk-off flows keeping the pressure on the pairing after it shed roughly two cents last week.
What’s Been Happening: Pound US Dollar Tumbles in Gloomy Trade
A prevailing risk-off mood saw the US Dollar storm higher against the Pound and majority of its other peers last week.
The gloomy mood was mostly driven by global recession fears. However aggressive Federal Reserve rate hike bets also saw investors favour the safe-haven US Dollar.
The only real setback for the US dollar came at the end of the week with the release of a stronger-than-expected US payroll release. The upbeat employment numbers cheered investors while underwhelming wage growth figures cooled Fed rate hikes bets.
Meanwhile, growing pessimism over the UK’s economic outlook placed considerable pressure on the Pound through last week’s session.
This was initially triggered by a report from Goldman Sachs in which it warned UK inflation could climb as high as 22% next year.
The British Chamber of Commerce (BCC) then heaped more pressure on Sterling at the end of the week as it warned the UK is likely already in a recession.
Three Things to Watch Out for This Week
- UK Politics
Liz Truss is widely expected to be confirmed as the next UK Prime Minister at the start of this week. Will concerns over her economic priorities lead to increased volatility in the Pound?
- ISM Non-Manufacturing PMI
The focus for USD investors this week may be on the latest ISM non-manufacturing PMI. The S&P PMI’s suggest the US service sector contracted sharply in August. If this is reflected in the more influential ISM release the US Dollar could come under significant selling pressure.
- Market Risk Appetite
Russia’s decision to indefinitely suspend gas flows through the Nord Stream 1 pipeline. Coupled with global recession fears may keep the pressure on the GBP/USD exchange rate this week.
Pound US Dollar Forecast
The Pound US Dollar exchange rate remains vulnerable to further losses this week. Will the pairing test the multi-year lows struck at the start of Covid pandemic?