Pound US Dollar (GBP/USD) Exchange Rate Dips amid threat of UK Credit Downgrade
The Pound US Dollar (GBP/USD) exchange rate is sliding this morning after Fitch became the second rating agency to cut the outlook on the UK’s credit rating to ‘negative’.
At the time of writing, GBP/USD exchange rate was trading at around US$1.1324, a drop of around 0.3% from the morning’s opening rate.
Pound (GBP) Drops amid UK Credit Rate Cut and Political Tension
The Pound (GBP) saw another fall in exchange rates this morning as Fitch joined S&P in cutting the outlook for the UK’s AA- credit rating from ‘stable’ to ‘negative’ as a result of September’s political and economic uncertainty.
A statement released by the credit rating agency stated:
‘The large fiscal stimulus, announced without compensatory measures or an independent evaluation of the macroeconomic and public finances’ impact, and the inconsistency between fiscal and monetary policy stance given strong inflationary pressures, have in Fitch’s view, negatively impacted financial markets’ confidence and the credibility of the policy framework, a key long-standing rating strength.’
Between Fitch’s bleak outlook on the UK economy and governmental policy, tension within the Conservative Party continues to affect GBP exchange rates amid concerns over the future of Liz Truss’s premiership.
Economic data releases are scarce today, so these domestic events will likely act as the main catalyst of movement for the Pound, with Chancellor Kwasi Kwarteng due to meet with high street banks to discuss rising mortgage rates.
US Dollar (USD) Firms amid Growing Global Uncertainty
The US Dollar (USD) continues to shore up as the global economic outlook grows bleaker, and a recession seems more likely.
Investors have flocked to the safe-haven ‘Greenback’ during today’s session, as hawkish comments from the Federal Reserve strengthened the likelihood of strong rate hikes to curtail inflation.
While Wednesday’s forecast beating US services PMI assuaged some of the global market jitters, the recent turbulence within UK government and the continuing Ukraine-Russia conflict has elicited a risk-off mood, firming USD against its peers.
Pound US Dollar (GBP/USD) Exchange Rate Forecast: US Jobless Claims May Reaffirm Fed Rate Hike Bets
Looking ahead, movement in the Pound US Dollar exchange rate may also be influenced today by the release of the latest US jobless claims data.
While analysts are forecasting a small increase in new claims in the last week of September. The number of Americans filing new unemployment claims is expected to remain fairly low.
Further signs of a tight labour market may bolster expectation Fed rate hike expectations and may see the US Dollar firm.
Friday’s US non-farm payroll release is expected by investors to show a dip from 315k to 290k, which may also affect USD’s exchange rates.
For the UK, data releases are thin on the ground. The market will be beholden to domestic developments, with turbulence expected as the mood sours towards the Pound (GBP).
Chancellor Kwasi Kwarteng is expected to hold crisis talks today with UK high street banks regarding soaring mortgage rates, which may further dent GBP.