Pound US Dollar (GBP/USD) Exchange Rate Slumps to 37-Year Low as UK Recession Risk Grows

Pound US Dollar Exchange Rate Weakens as UK Retail Sales Fall Sharply

The Pound US Dollar (GBP/USD) exchange rate slid this morning as UK retail sales printed worse than expected.

At time of writing the GBP/USD exchange rate is trading around $1.363, a 0.78% fall from this morning’s opening levels.

Pound (GBP) Slipped on Biggest Decline in Retail Sales for the Year

The Pound (GBP) is under renewed pressure today as retail sales for August fell short of forecasts and dropped worse than expected.

An expected 0.5% drop was met with an even bigger miss of 1.6% MoM for August. Core retail sales, excluding auto fuel, also fell by 1.6%. The biggest decline since May 2021, and excluding fuel sales fell 5% YoY. John Hardy, head of currency strategy at Saxobank, commenting on the data, which was the worst decline since December 2021, said:

‘The grinding backdrop of everything that’s going on is weighing on sterling, with the UK running these massive external deficits and the risks around the new prime minister’s policies adding to that.’

With retail sales plummeting three times more than market experts predicted, the UK’s cost-of-living crisis has not yet peaked. Recession fears have grown once more, as the economy is hurtling towards a recession. High street retailers have recently warned of huge profit losses in the past week, including the likes of Primark and Asos. 

US Dollar (USD) Firms amid Risk Aversion

The US Dollar is enjoying strong tailwinds today as it soared to the highest level against the Pound since 1985. Renewed global recession fears have seen a surge in safe-haven flows, benefitting the ‘Greenback’.

Meanwhile, lending some considerate support to safe-haven currencies, including the US Dollar, is a stark warning from the World Bank. The global core inflation rate, excluding volatile energy, is likely to remain at 5% next year. Almost double the five-year average before the pandemic, a global recession is edging nearer unless energy supply troubles subside.

The global economy is in its steepest slowdown since 1970, with consumer confidence at a rock bottom. David Malpass, World Bank President, talked of his concern with trends persisting, and higher interest rates could trigger a global recession. Malpass added:

‘Global growth is slowing sharply, with further slowing likely as more countries fall into recession.’

Pound US Dollar Forecast: Mounting Recession Fears to Sink the Pound Further?

Looking ahead, the Pound US Dollar exchange rate could see Sterling plunge lower as the cost-of-living crisis continues to squeeze UK households. With no data for the rest of the day, the Pound will be left to domestic issues and market sentiment.

Meanwhile, in the US, the Michigan consumer sentiment is expected to continue its improvement. The sour consumer mood has steadily improved over the past three months, if forecasts prove true, a fourth could highlight improving consumer sentiment.

Danny Tingle

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