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Pound US Dollar (GBP/USD) Exchange Rate Plummets as UK Economy Contracts

Pound US Dollar

Pound US Dollar (GBP/USD) Exchange Rate Tumbles after UK GDP Fall

The Pound US Dollar (GBP/USD) exchange rate is slumping today after figures indicated a contraction in the UK’s economy, as well as an increased trade deficit. Additionally, upbeat US consumer sentiment and hawkish Fed rhetoric may also be pulling the currency pair lower.

At time of writing the GBP/USD exchange rate is at around $1.2111, which is down roughly 0.7% from this morning’s opening figures.

Pound (GBP) Falls as Economy Contracts in June

The Pound (GBP) is tumbling against its competitors today after multiple downbeat data releases. A risk-on market mood may also be limiting gains for Sterling.

GDP figures released earlier today indicated a contraction in the UK’s economy in June. GDP fell by 0.6%, down from the previous month’s reading of 0.4% growth. The figures were not as bad as initially forecast however, with an uptick to service sector performance helping to limit the downturn in growth.

Economists are predicting that a 2022 recession is still imminent for the UK, however. In fact, the National Institute of Economic and Social Research (NIESR) said that the second quarter contraction that that a UK recession had already begun.

Data releases for June also saw the UK’s trade deficit hit its lowest point since 1955. The figures are likely keeping the currency on the defensive.

Samuel Tombs of Pantheon Macroeconomics said:

‘The trade data are grim, and will worsen further over the coming months, leaving sterling even more vulnerable than usual to any reduction in the willingness of overseas investors to supply the finance needed to sustain this excessive consumption.’

US Dollar (USD) Firms amid Hawkish Fed Comments

The US Dollar (USD) is edging higher today amid a strong pickup in demand. The currency is also likely being supported by hawkish comments from multiple Federal Reserve officials.

Despite softer than forecast CPI figures earlier this week, Fed policymakers have remained committed to a path of consistent policy tightening.

Speaking on Thursday, Chicago Fed President Charles Evans signalled that inflation in the US was still ‘unacceptably’ high. Also on Thursday, San Francisco Fed President Mary Daly did not rule out further 0.75% rate hikes from the central bank.

An uptick to consumer sentiment in the US could also be lending support to USD today. The preliminary reading of August’s index rose to 55.1 versus a forecast rise to 52.5.

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