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GBP/USD Exchange Rate to Sink Further amid Global Recession Fears

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GBP/USD Exchange Rate Subdued by Risk-Off Mood

The Pound US Dollar (GBP/USD) exchange rate is weak today as the Pound (GBP) drops below $1.16 for the first time since the Covid crash in March 2020.

At the time of writing the GBP/USD exchange rate is trading at around $1.1562, down 0.3% compared to this morning’s opening rate.

US Dollar (USD) to Strengthen amid Risk Aversion?

The US Dollar (USD) is enjoying some support today as a general risk-off mood underpins the ‘Greenback’.

However, USD gains seem to be capped as investors speculate whether the Federal Reserve will hike interest rates by 50 or 75bps to curb inflation. Markets broadly predict a larger rate rise, but recent poor US data may be keeping a lid on expectations.

A raft of US data pertaining to the jobs market and manufacturing is due this afternoon, which could impact USD. The focus will be on August’s ISM manufacturing PMI, which is expected to drop from 52.8 to 52. If factory activity slows more than expected, the US Dollar could trim its gains.

Despite this, the safe-haven currency will likely remain strong as economic uncertainty in the UK and Europe stokes recession fears and risk aversion continues.

Pound (GBP) to Weaken Further as Economic Worries Grow?

The Pound is subdued today as economic fears continue to dampen the currency’s appeal. GBP has dropped below $1.16 against the US Dollar for the first time since March 2020.

New data from the Office of National Statistics (ONS) shows that small business sales fell significantly in recent months, adding to worries about the health of the UK economy.

The ONS said:

‘The value of sales by small businesses in July fell 10% from the previous month, which was the largest monthly fall since April 2020 when it decreased by 24%.’

Looking ahead, the Pound risks dipping into new multi-year lows during latter-week trading as the UK energy crisis continues to affect business and consumers.

Economists fear that spiralling energy costs could push millions of households into poverty, while many otherwise viable businesses may be unable to keep up with soaring costs.

The lack of any significant data will see the Pound trade on domestic headlines for latter-week trading. Could an energy crisis solution put forward by the new Prime Minister next week see an uptick in the Pound?

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