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Pound US Dollar Exchange Rate to Strengthen on Resilient US Service Sector?

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GBP/USD Exchange Rate Wavers as UK Economic Fears Deepen

The Pound US Dollar (GBP/USD) exchange rate is fluctuating as concerns over the fragility of the UK economy is sapping demand.

At time of writing the GBP/USD exchange rate is around $1.2548, relatively unchanged from this morning.

Pound (GBP) Under Pressure from Recession Risks

The Pound (GBP) is failing to find a clear direction as a lack of economic data left it exposed to mounting economic pressures.

Adding to the woe, the British Chambers of Commerce (BCC) gave a warning this morning that the economy is likely to flatline over the next six months. However, it will likely feel like a major recession for most of the country. Furthermore, the BCC is predicting that economic activity will remain subdued for the next two years as high inflation and elevated interest rates take their toll. The BCC added:

‘Consistently low economic growth of this nature is comparable to previous periods of economic shocks and recessions such as the oil crises of the 1970s and financial crash of 2008.’

Despite expectations that inflation is falling steadily, the BCC also predicts that the Bank of England’s (BoE) target of 2% will not be achieved until the end of 2025. Vicky Pryce, a senior member of the Economic Advisory Council for the BCC, said:

‘The BCC’s latest forecast shows the UK economy is continuing to teeter on the edge of a recession. But the fact is, that with growth predicted to hover so close to zero for three years, it will still feel a lot like one for most people and businesses.

‘The impact this will have on consumer spending, coupled with a poor trade performance, will only generate more uncertainty for firms.’

Looking ahead, BoE policymakers will be facing the Treasury Select Committee later today as questions will be asked around the central bank’s monetary policy going forward. Any indication to how the BoE will proceed could influence the Pound.

US Dollar (USD) Quiet ahead of ISM Services PMI

Meanwhile, the US Dollar (USD) is also struggling for sustained demand as investors move to the sidelines ahead of the crucial ISM services PMI reading.

Despite a risk-off mood permeating the market, the safe-haven ‘Greenback’ is failing to capitalise on the downbeat sentiment and remains subdued.

Turning to this afternoon, the latest economic data could have big ramifications to the US Dollar. With the rest of major economies struggling with domestic consumer spending, the US economy is predicted to remain resilient in the face of high interest rates and inflationary pressures.

Expectations of the service sector to remain in expansion territory despite slowing, could boost the ‘Greenback’. Services PMI is predicted to ease from 52.7 to 52.5, and if forecasts prove accurate, the US Dollar could climb on further signs of a strong economy.

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