The Pound US Dollar (GBP/USD) exchange rate struck a new record low this morning. Extending Friday’s selloff in early trade amid an adverse reaction to Chancellor Kwasi Kwarteng’s mini-budget.
What’s Been Happening: Kwarteng’s Tax Cut Plans Cause Run on the Pound
The Pound US Dollar exchange rate fell off a cliff last week.
The first half of the week saw the GBP/USD exchange rate hold in a narrow range. An extended weekend in the UK and caution ahead of key central bank rate decision limiting liquidity in the pairing.
The US Dollar then spiked in mid-week trade, following the Federal Reserve’s latest interest rate decision. The Fed delivered another 75bps rate hike, while also signalling more hikes are to come.
A bout of profit taking initially allowed GBP/USD to recoup some losses. Before a disappointing 50bps hike from the Bank of England (BoE) quickly scuppered this recovery.
The bulk of Sterling’s losses were focused at the end of the week. The unveiling of Kwasi Kwarteng’s mini-budget triggered a run on the Pound, with the GBP/USD exchange rate falling over 3%.
GBP investors were spooked by Kwarteng’s massive unfunded tax cuts. Concerns over which carried over into the start of this week and saw GBP/USD strike a record low.
Three Things to Watch for This Week
- BoE Interest Rate Hike?
Analysts forecast the BoE could deliver an emergency rate hike this week. Could an extraordinary intervention by the bank help to shore up support for the Pound?
- US Durable Goods Orders
The latest US durable goods orders release is expected to report a contraction in new orders last month. Potentially denting the appeal of the US Dollar.
- US PCE Price Index
Also in focus for USD investors this week will be the latest core PCE price index. If the Fed’s preferred indicator for inflation continues to climb it may boost the US Dollar.
Pound US Dollar Outlook
Volatility in the Pound US Dollar exchange rate is likely to remain elevated this week, amid the fallout of Kwarteng’s mini-budget and the possibility of an emergency rate hike from the BoE.