Pound US Dollar (GBP/USD) Exchange Rate Struggles amid Souring Market Mood
(Updated 16:40, 23/06/23) The Pound US Dollar (GBP/USD) exchange rate attempted a recovery today but shed its modest earlier gains amid a souring market mood.
The Pound (GBP) initially fluctuated this morning following mixed economic data. While UK retail sales unexpectedly grew, the PMI surveys came in worse than expected.
However, Sterling was eventually able to make modest gains against the US Dollar (USD). The upbeat sales report and evidence of inflation in the latest PMIs boosted Bank of England (BoE) rate rise bets.
This meagre upside proved to be short-lived. A bearish mood in markets saw investors favour the safe-haven ‘Greenback’ versus the riskier Pound.
At the time of writing, GBP/USD was trading at $1.2708, roughly unchanged from the start of the European session but down almost 0.6% on the week.
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Pound US Dollar (GBP/USD) Exchange Rate Languishing amid Mixed Data Releases
The Pound US Dollar (GBP/USD) exchange rate is wavering close to a one-week low today as mixed UK economic data and a downbeat market mood weigh on the currency pairing.
At the time of writing, GBP/USD is trading at around $1.2708. This is down over 0.2% on the day and 0.5% on the week.
Pound (GBP) Under Pressure as Economic Concerns Grow
The Pound (GBP) is struggling this morning as storm clouds once again gather over the UK economy.
At the start of the session, the UK’s latest retail sales data gave GBP investors some hope. Domestic sales grew by 0.3% in May, rather than contracting 0.2% as forecast.
However, this upbeat news was offset by weaker-than-expected PMI results. The manufacturing survey printed at 46.2, down from 47.1 and below forecasts of 46.8. Meanwhile, the more important services PMI dropped from 55.2 to 53.7, versus 54.8 expected.
This mixed picture of the UK economy has caused Sterling to waver, with worries about slowing service sector activity putting pressure on the currency.
Furthermore, markets are increasingly concerned about the mortgage crisis brewing in the UK after the Bank of England’s (BoE) bumper rate hike yesterday.
Interest payments on mortgages have surged over the past year, and thousands of households will not be able to weather the shock. There are anxieties about a jump in repossessions as people are unable to pay their mortgages. Even those who can afford the higher rates will see their disposable incomes slashed, which in turn will squeeze the economy.
Kay Daniel Neufeld, Director and Head of Forecasting and Thought Leadership at the Centre for Economics and Business Research (CEBR), warned:
‘as the Bank of England continues to fight inflation, the economy is entering unchartered [sic] territory. With interest rates raising so rapidly in such a short amount of time, it is not only mortgage holders but also the wider financial system that will come under strain. At the same time, the risk of recession, which had seemed to fade away in recent months, is now rising again which could lead to a more rapid increase in unemployment than currently expected. The difficult economic times look set to stay with us for some time to come.’
These fears are lying heavy on the Pound today.
US Dollar (USD) Buoyed by Risk-Off Mood
Turning to the US Dollar (USD), the ‘Greenback’ is catching bids this morning as a souring market mood supports the risk-sensitive currency.
Investors are becoming increasingly fearful about the health of the global economy. Recent data shows that many countries around the world are struggling as persistent inflation and rapidly rising interest rates hammer households and stifle investment.
Renewed fears of a global economic downturn are driving investors away from riskier assets and towards safer investments, such as the US Dollar.
GBP/USD Exchange Rate Forecast: Pound to Remain on the Defensive
Looking ahead, the US PMIs are also due out this afternoon. While the S&P Global surveys aren’t as impactful as the ISM ones, they could still spark some movement.
Economists expect a meagre rise in the manufacturing activity score, although it’s set to remain in contractionary territory. Meanwhile, service sector activity is forecast to slow.
While downbeat economic data could dent USD, it may also fuel the risk aversion currently sweeping markets. If so, this could actually lend the safe-haven ‘Greenback’ some strength.
As for the Pound, concerns about the UK economy and the current mortgage crisis could keep Sterling under pressure through to the end of the session.