Pound US Dollar (GBP/USD) Exchange Rate Falls as UK Government Confirms Recession
The Pound US Dollar (GBP/USD) exchange rate is dropping after the reveal of the UK’s Autumn statement. The outlining of higher government borrowing and confirmation of a recession for the UK prompted losses for the currency pair.
At time of writing the GBP/USD exchange rate is at around $1.1816, which is down around 0.8% from this morning’s opening figures.
Pound (GBP) Slips as UK Government Unveils Autumn Statement
The Pound is edging lower after the reveal of the UK’s Autumn statement by Chancellor Jeremy Hunt. The statement has also seen a dip in UK bond prices which may be weighing on GBP.
The Chancellor stated that he would be raising the country’s income tax threshold alongside a sharp increase in government borrowing.
Hunt’s confirmation that the UK’s economy will shrink in 2023 may be weighing on GBP. The growth forecasts from the Office of Budget Responsibility (OBR) for 2024 and 2025 were also revised lower.
Confirmation from the Chancellor of further household and business support could be lending support to Sterling, however. Hunt announced that the government would be extending the windfall tax on energy firms, and establishing a relief scheme for businesses ahead of a review of business rates.
The Autumn statement also included an extension of the energy price guarantee, a cap on rent hikes, a rise in the living wage.
US Dollar (USD) Bolstered by Risk-Off Mood
The US Dollar (USD) is climbing today. The safe-haven ‘Greenback’ is being supported by risk-off flows as well as an uptick in US Treasury bond yields.
USD may be seeing gains limited by a continued paring back of interest rate hike bets. Markets now expect the Federal Reserve to hike rates at a slower pace despite cooling inflation.
Comments from Fed policymaker Christopher Waller on Wednesday added to bets on a policy tightening slowdown.
At a speech in Phoenix, Waller said:
‘The data of the past few weeks have made me more comfortable considering stepping down to a 50-basis-point hike. But I won’t be making a judgment about that until I see more data.” The US Dollar may also be continuing to find support from strong retail sector data on Wednesday. October’s sales beat forecasts to climb to 1.3% versus a forecast increase of 1%.
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