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Pound US Dollar Exchange Rate Dips as UK Supply Chain Crisis Weighs on Sterling

August 25, 2021 - Written by John Cameron

GBP/USD Exchange Rate Falls as UK Economic Optimism Dwindles

The Pound US Dollar (GBP/USD) exchange rate dipped today following reports that the UK’s supply chain crisis appears to be worsening, according to the Confederation of British Industry (CBI). The pairing is currently trading around $1.37.

As a result, confidence in the UK economy has dwindled, with expectations that supply chains could further prove an issue for recovery in the months ahead.

Andrew Sentence, a former member of the Bank of England’s monetary policy committee, explains:

‘We could see this persisting for longer than people expect. Skills shortages could go on for a few years, the impact of Brexit on our ability to attract workers from the EU is not going to go away quickly and the process of training was quite significantly disrupted by the pandemic, when people were not working and furloughed.’

The UK’s supply chain crisis has been beleaguered by staff shortages and transport disruption due to a combination of Covid-19 and Brexit.

In absence of UK economic data today, however, Pound investors are instead focusing on the nation’s coronavirus developments.

Could rising daily case numbers see the GBP/USD exchange rate tumble later in today’s session?

US Dollar (USD) Dips as Risk Sentiment Improves

The US Dollar (USD) dipped today as risk-sentiment has shown some signs of improving, with the full approval of the Pfizer vaccine in the US driving away some of the appeal of the safe-haven currency.

Today also saw the release of the latest US durable goods orders for July, which fell from 0.8% to -0.1%, slightly above forecasts.

Jeffry Bartash, writing for Market Watch, commented:

Orders for long-lasting goods fell in July for only the second time in 15 months, but the weakness was mostly in new airplanes. Demand was strong in other parts of the economy despite broad shortages of labor and materials.

‘Orders for durable goods slipped 0.1% last month, the government said Wednesday. Economists polled by the Wall Street Journal had forecast a 0.5% decline.

‘Yet if transportation-related goods such as autos and airplanes are set aside, new orders rose 0.7% last month.

‘The delta variant had little impact on the economy in July, but a fresh evidence suggests growth suffered a little bit of a let-up in August. Service providers such as restaurants or airlines were hit harder while manufacturers appeared largely immune.’

As a result, USD investors have become more concerned about the outlook for the US economy, which is showing steady signs of weakening.

GBP/USD Exchange Rate Forecast: US GDP Data in Spotlight

US Dollar (USD) traders will be awaiting tomorrow’s release of the preliminary US growth data for the second quarter.

Could an uptick in US economic growth boost the ‘Greenback’?

Tomorrow will also see the publication of the latest US initial jobless claims. If unemployment falls, then the USD/GBP exchange rate could head higher.

Pound investors will continue to monitor the UK’s coronavirus developments. If daily case numbers continue to climb, then Sterling would fall against the ‘Greenback’.

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