Pound US Dollar Exchange Rate News: GBP/USD Muted amid UK Cost of Living Crisis

Modified: Wednesday, 6 April 2022 11:05 BST - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Muted amid UK Cost of Living Crisis

GBP/USD Rangebound amid UK Cost of Living Crisis

The Pound US Dollar (GBP/USD) exchange rate is trading in a narrow range as today’s rise in national insurance further amplifies the UK’s cost of living crisis.

At the time of writing, the GBP/USD exchange rate is trading at approximately $1.3097, with minimal movement today’s opening levels.

Pound (GBP) Subdued as NI Rise Exacerbates UK Cost of Living Crisis

The Pound (GBP) is directionless against the US Dollar (USD) as a rise in NI comes into effect today in effort to provide additional funding for the NHS.

The 1.25% increase, which was announced last September, is expected to raise an ‘extra £39bn’ to go towards the NHS despite the cost of living crisis.

Boris Johnson has defended the move following the pandemic as ‘Covid led to the longest waiting lists we’ve ever seen’.

The UK Health Secretary, Sajid Javid, has echoed support for the NI hike, stating it’s only ‘right that we pay for what we are going to use as a country’.

However, this comes in the midst of soaring inflation, high energy prices and supply bottlenecks, squeezing the incomes of working-class families.

Unite’s general secretary Sharon Graham said:

‘Once again working people are being made to pay for the bad decisions of those in power. Workers and their families are hurting now, hit by rocketing inflation.’

According to Graham, the government should be increasing taxes on the businesses who are profiting from high energy prices and that benefitted during the global pandemic.

GBP investors fear the cost of living crisis could severely hamper UK economic growth this year, as consumer spending is expected to slump as households are forced to tighten their purse strings.

On the data front, the construction PMI for March has printed at 59.1, in line with February’s reading and above market forecasts of 57.8, although this provided only very limited support for the Pound.

US Dollar (USD) Muted Ahead of FOMC Minutes

The US Dollar (USD) is mixed against the Pound (GBP) today as investors await the publication of last month’s Federal Open Market Committee (FOMC) minutes.

The FOMC minutes are of key interest to USD investors, as they look to gauge whether the Federal Reserve will pursue a 25bps or 50bps interest rate hike at its next policy meeting.

Should the minutes bolster the case for a half-percent increase at its next policy meeting, it is likely to boost demand for USD.

Furthermore, the Ukraine crisis has driven a risk-off mood as hopes for peace talks reaching a diplomatic solution falter.

As a result, the Russia-Ukraine war is souring market sentiment and steering investors towards the safe haven currency.

GBP/USD Exchange Rate Forecast: Will Russia-Ukraine War Drive Risk Aversion?

Looking ahead, the Ukraine crisis is likely to continue to infuse volatility into the market, weighing on the Pound US Dollar exchange rate.

If peace talks struggle to make meaningful headway, particularly after this week’s reveal of atrocities committed by Russian troops in areas surrounding Kyiv, it may place pressure on the risk-sensitive Sterling.

Tomorrow, GBP exchange rates may be influenced by a speech scheduled from Bank of England (BoE) policymaker, Huw Pill.

Should Pill strike a dovish tone, it may further weaken the appeal of the Pound.

Meanwhile, speeches from Federal Reserve policymakers throughout the rest of this week’s session may support USD if a hawkish consensus prevails.

Furthermore, ‘Greenback’ may be buoyed by initial jobless claims tomorrow.

New jobless claims are expected to have slipped from 202K to 200K last month, potentially bolstering the US Dollar.

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TAGS: Pound Dollar Forecasts