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OBR Warns UK may have entered a ‘Full Blown Recession’ but USD/GBP Exchange Rate Slides

July 18, 2019 - Written by John Cameron

US Dollar Pound (USD/GBP) Exchange Rate Slumps despite Warnings UK Economy to Plunge into a Recession

The US Dollar Pound Sterling (USD/GBP) exchange rate slumped and the pairing is currently trading at an inter-bank rate of £0.8014.

The pairing slumped despite the Office for Budget Responsibility (OBR) revealing that that the UK will face a recession in the event of a no-deal Brexit.

The report revealed that a £30 billion black hole will be left in public finances and the economy will plunge into a recession.

The fiscal watchdog also revealed that recent data from June also suggests the UK may have entered a ‘full blown recession’.

Meanwhile, current UK Chancellor Philip Hammond stated that he feared the consequences of a worst case no-deal Brexit.

Hammond stated that the report from the OBR showed that even the most benign version of a no-deal Brexit would inflict ‘a very significant hit to the UK economy.’

Speaking to Reuters, the British Chancellor stated:

‘So I greatly fear the impact on our economy and out public finances of the kind of no deal Brexit that is realistically being discussed now.’

Sterling (GBP) Buoyed by Surprise Rise in UK Retail Sales

Meanwhile, Brexit pessimism was offset by a surprise rise in UK retail sales.

Data from the Office for National Statistics (ONS) showed that sales rebounded in June despite forecasts predicting a slump.

Compared to the previous June, sales rose by 3.8% while month-on-month retail sales jumped by 1%.

Concern that the UK economy is in danger of shrinking during the second quarter rose among economists.

However, Sterling sentiment was likely buoyed as today’s strong data helped reduce the risk of a shrinking economy.

US Dollar (USD) Slides as US Housing Permits Fall to Two-Year Low

On Wednesday US Dollar sentiment likely slumped as data from the Commerce Department showed that US homebuilding fell for the second consecutive month.

Building permits fell to a two-year low in June revealing the US housing market continued to struggle despite mortgage rates falling.

Data also showed that housing completions were stuck at six-month lows while there was only a modest increase in the number of homes under construction.

Commenting on the data, Chris Rupkey, Chief Economist at MUFG noted:

‘Residential housing construction is one of the leading indicators of a recession, and while construction activity isn’t dropping precipitously, housing is stuck in a rut.

‘If the Fed thinks rate cuts are going to send housing construction up like a rocket, they better think again.’

US Dollar Pound Outlook: Will a Higher than Forecast Philly Fed Manufacturing Index Buoy USD?

Looking ahead to this afternoon, the US Dollar (USD) could rise against Sterling (GBP) following the release of the Philadelphia Fed Manufacturing Survey.

If July’s survey rises higher than forecast it could provide the ‘Greenback’ with an upswing of support.

Meanwhile, on Friday the Dollar could make further gains following the release of the flash Michigan Consumer Sentiment Index.

If July’s index reveals there has been a rise in confidence, it could cause the US Dollar Pound (USD/GBP) exchange rate to rise.

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