Pound US Dollar (GBP/USD) Exchange Rate Struggles following Sterling’s Recent Slump
The Pound US Dollar (GBP/USD) exchange rate is losing ground this morning amid a bleak UK economic outlook and looming threats of a US government shutdown.
At the time of writing the GBP/USD exchange rate is trading at around $1.2186, down roughly 0.2% from this morning’s opening rate.
Pound (GBP) Pressured by UK Slowdown Fears
The Pound (GBP) continued to decline this morning as a lack of data leaves GBP investors to focus on recent concerns over the trajectory of the UK economy.
Yesterday, accounting goliath KPMG released its latest UK Economic Outlook.
Yael Selfin, Chief Economist at KPMG in the UK, commented:
‘The UK economy is experiencing renewed signs of stress. While worries about a deep recession have largely gone away, the prospects of high interest rates and low productivity are expected to hold back growth.
‘The UK economy could struggle to keep its head above water in the second half of 2023. Our forecasts show real GDP growth slowing to just 0.4% in 2023 and 0.3% in 2024.’
This warning came shortly after the UK’s latest PMIs, which showed a worrying contraction of growth within the vital services sector. Retailers such as Asos have also experienced lower-than-expected sales, with the fast fashion giant suffering a 2% drop in shares.
Concerns over the UK’s economic slowdown are also weakening any hopes that the Bank of England (BoE) might raise interest rates again in the future.
US Dollar (USD) at Ten-Month High amid Potential Government Shutdown
The US Dollar (USD) continues moving with an upward trajectory today, with investors flocking to the safe-haven currency as a wave of cautious trade sweeps through global markets. Amid rising global borrowing costs and fears surrounding China’s struggling property sector, USD firms today against its peers.
A potential US government shutdown is also impacting risk appetite today, with worries actually bolstering USD.
During the last federal shutdown in 2018, the US Dollar gained ground against most of its major peers. Fears around the impact of a shutdown are currently driving safe-haven flows to USD, thereby boosting the ‘Greenback’.
Pound US Dollar Exchange Rate Forecast: US Data to Drive the ‘Greenback’?
Later today, the US CB consumer confidence index may dent USD, with an expected decline inbound.
At the same time, the absence of any notable UK data may leave the Pound vulnerable to external forces. Following last week’s dovish Bank of England rate hold and downbeat UK data, could the increasingly risk-sensitive Pound continue to be driven by a gloomy market mood?
Looking further ahead, new US data may drive the ‘Greenback’ later in the week. The publication of the final US GDP growth rate data on Thursday is expected to show a minor increase in GDP, which may boost USD.
Other data to watch out for this week includes the US figures for personal spending, personal income and, most significantly, the core PCE price index on Friday. If the Federal Reserve’s preferred measure of inflation eases as expected, USD could trim its recent gains.
Until then, risk appetite and the potential for a US government shutdown may drive volatility.