Pound US Dollar (GBP/USD) Exchange Rate Slides Below $1.07 as IMF Sounds Alarm at UK Tax Plans

Pound US Dollar Exchange Rate Slumps on IMF Intervention

The Pound US Dollar (GBP/USD) exchange rate is tumbling this morning. The International Monetary Fund’s (IMF) criticism of the UK government’s tax cut plans, adding to Sterling’s recent woes.

At the time of writing the GBP/USD exchange rate is trading at around $1.0672. Down roughly 0.5% from this morning’s opening levels.

Pound (GBP) Undermined by IMF Criticism of UK Mini-Budget

The Pound (GBP) is on the defensive again this morning. As GBP investors awoke to a statement from the IMF openly criticising Chancellor Kwasi Kwarteng’s plans for massive unfunded tax cuts.

This piles even more pressure on Sterling, which has collapsed since Kwarteng unveiled his mini-budget on Friday.

The IMF urged the government to reconsider its plan. Warning the tax cuts will undermine efforts by the Bank of England (BoE) to tackle inflation.

The statement from the IMF, read:

‘Given elevated inflation pressures in many countries, including the UK, we do not recommend large and untargeted fiscal packages at this juncture, as it is important that fiscal policy does not work at cross purposes to monetary policy.

‘Furthermore, the nature of the UK measures will likely increase inequality.’

The intervention from the IMF will be seen as a major rebuke of the government’s plans. And Could see the Pound US Dollar retest its recent lows If the government remains defiant.

US Dollar (USD) Strengthens in Risk-Off Trade

The US Dollar (USD) is trending higher this morning. A prevailing risk-off mood bolstering the appeal of the safe-haven currency.

This downbeat mood is at least partially attributed to the current Sterling crisis. The sharp fall in the Pound and surge in UK gilt yields has rippled through the market and is beginning to impact other developed market bonds.

Also weighing on market risk appetite is the expectation the Federal Reserve will continue to raise interest rates aggressively.

The Fed’s commitment to do ‘whatever it takes’ to tackle inflation is both underpinning demand for the US Dollar as well as stoking global recession fears.

Pound US Dollar Exchange Rate Forecast: Hawkish Fed Speeches to Reinforce USD Gains?

The Pound US Dollar exchange rate could face additional pressure later today amid a series of speeches by Fed policymakers.

A speech by Fed Chair Jerome Powell is likely to be of particular focus. If Powell reaffirms the Fed’s hawkish outlook on future interest rate hikes the US Dollar is likely to extend its bullish momentum.

Meanwhile, BoE policymaker Dr Swati Dhingra is scheduled to speak later this evening.

The newest member of the BoE’s monetary policy committee also appears to be the most dovish, judging by her call for a 25bps hike at the bank’s latest meeting. If she casts doubt on a large interest rate hike from the BoE’s at its next meeting, the Pound could fall.

Matthew Andrews

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