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Pound US Dollar (GBP/USD) Exchange Rate Extends 6-Day Low

June 29, 2022 - Written by John Cameron

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GBP/USD Exchange Rate Wavers Ahead of Sintra Speech

The Pound to US Dollar (GBP/USD) exchange rate is trending sideways today as both currencies await trading impetus from this afternoon’s closing speech at the Sintra Forum in Portugal.

Both Bank of England (BoE) Governor Andrew Bailey and Federal Reserve Chairman Jerome Powell will address the assembly, alongside European Central Bank (ECB) President Christine Lagarde.

At the time of writing, GBP/USD is trading at $1.2169, down slightly from today’s opening levels.

US Dollar (USD) Buoyed by Risk-Off Mood

The US Dollar (USD) is trading up against the majority of its peers so far today as market sentiment is bearish given concerns about higher interest rates and slowing economic growth.

Safe-haven flows are encouraged by weaker equity markets and an evident lack of morale amongst investors and the public – US consumer confidence fell to 98.7 yesterday from 103.2 the month previous.

According to the Financial Times:

‘The confidence survey published by the Conference Board, an economic research organisation, showed that consumers believe prices will continue to rise, even as the Federal Reserve tightens monetary policy to curb inflation.

The report also showed that consumers’ outlook on the state of the economy and labour market was the most grim in almost a decade.’

Lending additional USD support may be a mixed GDP release this afternoon: while finalised data is expected to confirm that the US economy contracted by 1.5% in Q1 2022, the causes of economic weakening – a wider trade deficit and slower inventory growth – are forecast to reverse.

If this expectation is reiterated today, ‘Greenback’ investors may enjoy tailwinds on hopes that growth will rebound in Q2.

Pound (GBP) Falters on Cost-of-Living Headwinds, Brexit Issues

The Pound (GBP) is struggling to hold onto gains against several currencies today as GBP headwinds arise in the form of cost-of-living fears, Brexit issues and whispers of a recession.

UK shop price inflation hit a thirteen-year high this morning, accelerating to 3.1% in June from 2.8% in May. According to the British Retail Consortium (BRC), the report reflects the surging prices of commodities, energy, fuel and transport.

Commenting on the data, Helen Dickinson OBE, chief executive of the BRC, said:

‘Retailers are working to find more ways to protect their customers from the worst effects of inflation, but if costs continue to spiral, Government may need to find ways to help retail businesses support their customers.’

Elsewhere, international relations may have some bearing on currency dynamics. As Turkey drops its objections to Finland and Sweden joining NATO – which the Scandinavian countries applied to do after Russia’s invasion of Ukraine – Britain continues to battle with ongoing Brexit woes.

The mayor of London, Sadiq Khan, declared yesterday evening that leaving the European Union was ‘the biggest piece of self-inflicted harm ever done to a country’, joining a long line of governmental critics including Theresa May, who said on Tuesday that she would not support Boris Johnson’s bid to override the Northern Ireland protocol.

There are hopes that later today, Governor Bailey’s speech at the Sintra Forum may strike a hawkish tone, inspiring GBP upside amid a slew of negative trading stimuli. However, fresh fears that a recession could be coming are likely to cap significant gains for the British currency.

GBP/USD Exchange Rate Forecast: Central Bank Speakers to Dispel Gloom?

Looking ahead, if central bank speakers strike an upbeat tone this afternoon on the closing day of the Sintra Forum in Portugal, subsequent tailwinds may counter Brexit headwinds and risk-off trading. In such a scenario, the Pound could firm some way against the US Dollar.

On the other hand, if either the BoE or Federal Reserve take a dovish stance, USD is likely to climb according to its safe-haven appeal. Moreover, if recessionary fears persist and focus remains upon UK living costs, risk sentiment could weaken further, suppressing GBP/USD gains.

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