GBP/USD Exchange Rate Slumps on Worsening Global Outlook
The Pound US Dollar (GBP/USD) exchange rate plummeted after hitting a one-month high as risk-off sentiment returned amid a darkening global economic outlook.
At time of writing the GBP/USD exchange rate is around $1.2131, down by 0.26% from this morning’s opening levels.
US Dollar (USD) Strengthens Despite Entering Technical Recession
The US Dollar (USD) is finding renewed strength against its peers today as despite dropping into a technical recession. A surprise contraction in the US economy for the second consecutive quarter caused concern amongst investors.
GDP figures showed the economy shrinking by 0.9%, versus an expected 0.5% recovery initially sent the ‘Greenback’ plummeting. Many economists believe that consecutive contracting growth points to a technical recession.
Looking ahead, any further dovish tones from the Fed could weigh on the US Dollar, but with the better-than-expected personal spending pointing to a resilient economy, those fears could be allayed.
Pound (GBP) Slumps as Political and Social Turmoil Weighs Heavy
The Pound (GBP) initially enjoyed the dizzying heights of a one-month high before crashing as concerning lending figures surged at the highest rate in three years.
The Bank of England (BoE) released the latest borrowing figures and merely further highlighted the escalating cost-of-living crisis. Households across the country have had to turn to increased borrowing to cope with the soaring living costs. Printing far above expectations of a £1Bn rise, lending figures increased by £1.7Bn.
Meanwhile, a concerning number of industries are taking action against stagnating wages and worsening working conditions. BT and Openreach have undertaken their first strike in 35 years, joining dock workers. Announced just yesterday, staff at Felixstowe, the UK’s largest container port, are planning to stage walk outs in August.
Looking ahead, all eyes will be on the BoE interest rate decision next week. With growing expectations of a 50bps hike, the Pound could see a much-needed rebound. With inflationary pressures ever-building, the economy is at risk of weakening further.
Market experts are predicting a bold 0.5% rate hike as the central bank attempts to rein in inflation. But if the economy shows any further signs of weakening, aggressive rate bets could be pared. Manufacturing and services PMI are set to print, giving further impetus to the BoE’s interest rate decision.