The Pound (GBP) fell sharply against the US Dollar (USD) yesterday, as the Bank of England (BoE) overshadowed a 75bps rate hike with a warning that the UK faces a prolonged recession.
This resulted in the GBP/USD exchange rate falling as much as 2% to $1.1167. Before closing the session at around $1.2011
Pound (GBP) Crumbles as BoE Announces Recession
The Pound (GBP) fell off a cliff on Thursday as in the wake of some incredibly bleak economic forecasts from the BoE.
With the bank’s 75bps rate hike already priced in by markets, investors focused on the following press conference. The BoE stated that the UK was already in recession. They expanded by stating it would be one of the longest since records began.
The BoE’s statement read:
‘The MPC’s latest projections described a very challenging outlook for the UK economy. It was expected to be in recession for a prolonged period and CPI inflation would remain elevated at over 10% in the near term.’
The BoE Governor, Andrew Bailey, also indicated that the interest rates may not as sharply as markets are expecting. Despite the Bank’s determination to tackle the 40-year high rate of inflation with the highest rate hike since 1989, the dovish remarks undercut Sterling.
US Dollar (USD) Rallies Following Hawkish Fed Comments
The US Dollar (USD) shot higher on Thursday, as the currency continued to benefit from a surprisingly hawkish tilt from the Federal Reserve.
Wednesday evening brough the Fed’s interest rate decision, an expected 75bps rate hike, and press conference. In the conference, Fed Chair Jerome Powell indicated that the Fed would continue its aggressive rate hike strategy.
However, these gains were tempered later in the afternoon as the latest ISM non-manufacturing PMI reported growth in the US service sector slowed more than expected in October.
Pound US Dollar Exchange Rate Forecast: US Employment Data to Dent USD?
Looking ahead, US data such as Friday’s non-farm payrolls and unemployment rate for October may dent USD. With a fall expected in new jobs, and an uptick in unemployment, the ‘Greenback’ may weaken.
In the UK, BoE Chief Economist Huw Pill is scheduled to speak later today. Could more doom and gloom regarding the UK economy lead the Pound to give up more ground?