GBP/USD Exchange Rate Weak as Truss Prepares to Reveal Energy Bailout
The Pound US Dollar (GBP/USD) exchange rate is weak this morning as UK investors are wary ahead of the announcement of Liz Truss’s energy package.
At the time of writing the GBP/USD exchange rate is trading at around $1.1490, which is down roughly 0.2% from this morning’s opening rate.
Pound (GBP) Tumbles as Investors Await Energy Crisis Plan
The Pound (GBP) spiked earlier this week amid the first reports of as Liz Truss’s plan to freeze energy prices.
However, Sterling has since fallen back amid concerns over how the energy support package will be funded, with GBP investors wary of a massive increase in government debt at a time when borrowing costs are rising.
Some economists believe that the prime ministers plan is ‘poorly targeted’. Investors are also concerned that the cost of the package will cause borrowing rates and inflation to soar.
This leaves Sterling muted this morning as investors await Truss to officially unveil her government’s energy plan.
The plan is estimated to cost £130bn and is expected to mitigate some of the pressures on households and businesses. Economists also hope it will ease the-cost-of-living crisis by off-setting costs as the UK heads for a bleak winter.
If investors are receptive to Truss’s plans GBP could strengthen. However, if the plan falls short of expectations Sterling could keep slipping as economic concerns continue to weigh on the currency.
US Dollar (USD) Firms ahead of Fed Powell Address
The US Dollar (USD) is trading with modest gains this morning ahead of a speech by Federal Reserve policymaker Jerome Powell
Powell is due to give a speech this afternoon and investors are wary of trading beforehand.
Investors will use Powell’s speech to gauge the Federal Open Market Committees (FOMC) next interest rate hike.
The Reserve has been open about its plans to keep increasing rates to tackle inflation, leaving investors hopeful for a large hike.
The current consensus is that FOMC are in favour of a 75bps, which would fall in line with their aggressive hikes in recent months. Recent Fed commentary has also been mostly hawkish, which lends support to a bigger interest rate hike.
However, if Powell’s speech is dovish this could indicate a smaller hike of 50bps, which could impact USD and see it stagger. Prompting the investor caution.