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Pound US Dollar Exchange Rate to Slump on Poor UK PMIs?

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GBP/USD Exchange Rate Wavers amid Economic Uncertainty

The Pound US Dollar (GBP/USD) exchange rate is trading narrowly as concerns over a recession are met with prospects of further tightening from the Bank of England (BoE).

At time of writing the GBP/USD exchange rate is around $1.2756, relatively unchanged from this morning’s opening levels.

Pound (GBP) Undermined by Double-Edged Sword of Rate Hikes

The Pound (GBP) is failing to find a clear direction today as a lack of economic data has left Sterling to trade on market sentiment. Domestically, however, the issue remains on how much further the Bank of England (BoE) can go with interest rate increase before the economy truly suffers.

With inflation still far above the target rate of 2%, and the labour market showing varying signs of cooling, the central bank finds itself stuck between a rock and a hard place. A September hike is all but priced in, but whether it opts for a 25 or 50bps rate increase is yet to be seen. Economists are concerned that another quarter-point hike would be too small yet a bumper 50bps increase might be too much. The economic uncertainty the UK finds itself in is weighing on the Pound.

Looking ahead, Sterling could encounter renewed selling pressure if PMIs print to forecast. An expected slip in both the manufacturing and services sector could add further pressure to Sterling on a stuttering economy.

US Dollar (USD) Supported by Volatile Market Mood

Meanwhile, the US Dollar (USD) also struggled for a clear direction amid a cautious market mood. Despite elevated fears of a global slowdown, the safe-haven ‘Greenback’ seems to be hampered by a wavering market sentiment.

Looking ahead, a thin trading calendar will leave the US Dollar exposed to risk appetite. But with the ongoing concerns out of China and their stuttering economic recovery, market moods could turn sour very quickly, bolstering the ‘Greenback’. Jun Bei Liu, Economist at Tribeca Investment, said of the situation in China:

‘We will need bigger stimulus package to boost confidence and in turn drive up consumption and growth. Without it, the economy is risking faltering into deflation which will be harder to revive.’

Elsewhere and a speech from Richmond Fed President Tom Barkin could be the main driver of movement outside of market sentiment tomorrow. With mixed messages from the Fed in regard to monetary policy, any further comments on how long the Fed intends to keep interest rates high for could weigh on the US Dollar.

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