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Pound US Dollar (GBP/USD) Exchange Rate Slumps to 2020 Lows

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Pound US Dollar (GBP/USD) Exchange Rate Hits Lowest Point Since July 2020

The Pound US Dollar (GBP/USD) exchange rate is falling today, hitting its lowest point since July 2020. The US Dollar (USD) is continuing to remain bolstered after a sustained rally earlier this week. A risk-off market mood is helping to push investors toward the safe-haven ‘Greenback’. The Pound (GBP) meanwhile is still muted amid the UK’s cost-of-living crisis.

At time of writing the GBP/USD exchange rate is at around $1.2441, which is up around 0.8% from this morning’s opening figures.

US Dollar (USD) Gains Despite GDP Contraction

The US Dollar (USD) is climbing higher against its rivals today despite an above-forecast fall to first quarter GDP growth. Expectations of an aggressive rate hike from the Federal Reserve are helping to support USD.

The US economy shrank by -1.4% in the first quarter of 2022 as supply chain issues, Covid-19 cases, soaring inflation, and the Ukraine-Russia conflict weighed upon the country’s economy.s

Richard Flynn, managing director at Charles Schwab UK, said:

‘With high inflation and low growth expectations, it may be difficult for the Fed to raise rates without slowing growth. Economic data has been generally weakening recently, which is likely to persist, increasing the probability of a downturn.’

Speaking last week, Fed Chair Jerome Powell stated that a 0.5% interest rate hike would be ‘on the table’ for the central bank’s May meeting. The Fed’s stance is likely helping USD to climb today, although the possibility of a downturn may cap major gains.

Pound (GBP) Falls amid Cost-Of-Living Crisis

The Pound (GBP) is slipping against most of its competitors today. The impact of the UK’s cost-of-living crisis is likely continuing to push Sterling lower today. Pessimism regarding the Bank of England’s (BoE) monetary policy may also be weighing on the currency today.

The Pound has suffered in recent weeks for weaker-than-forecast data releases that have dented confidence in the UK’s economic prospects. A drop to distributive trades figures in April further highlighted struggles in the country’s already suffering retail sector.

Softened language around rate hikes from the BoE may be pushing the Pound lower today. Markets had previously largely been pricing in a 0.5% rate hike. Cautious rhetoric from Governor Andrew Bailey however has led to repricing by investors and fears that GBP could fall further.

Speaking last week, Bailey said:

‘We are now walking a very tight line between tackling inflation and the output effects of the real income shock.’