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Pound US Dollar Exchange Rate News: GBP/USD Slips amid Dovish BoE Speech

June 30, 2022 - Written by John Cameron

Pound (GBP) Under Pressure as Economic Outlook Darkens

The Pound (GBP) is sliding today as Bank of England (BoE) Governor Andrew Bailey appeared somewhat cautious in his speech and acknowledged the slowing of the economy.

Failing to rally investors, Bailey also said that soaring inflation could hit the UK harder than other countries. With prices rising at the fastest rate in over 40 years, businesses are being hit by soaring costs. British Chamber of Commerce (BCC) Director-General Shevaun Haviland, told a conference that time is running out to help the economy grow.

‘(The government] need to put in place support for businesses now to weather this storm. And, secondly, they need to work in partnership with us to develop a long-term economic strategy for growth.
Rising material costs, supply chain issues and worker shortages is creating a perfect storm.’

Further exerting downward pressure on the Pound is the printing of final GDP growth data for Q1. Despite showing a 0.8% expansion QoQ, it still shows growth is slowing and is the lowest in a year. Compounding matters is that real household disposable income fell by 0.2%, the fourth consecutive month of negative growth.

Elsewhere, Boris Johnson returns from several key international summits to deal with the turbulent issues brewing domestically. A potential trade war with the EU is edging closer as a bill that would unilaterally alter the Northern Ireland protocol is currently making its way through parliamentary approval.

With Scotland’s fresh push for independence on top of a ‘summer of discontent’ with unions mobilising to stage walkouts disrupting economic activity, political and social pressures continue to weigh on the Pound.

US Dollar (USD) Buoyed by Safe-Haven Flows

The US Dollar (USD) is strengthening as a fresh rise in risk-aversion helped support the ‘Greenback’ with growing recession fears driving investors to safe-haven currencies.

Despite the continued hawkish rhetoric from Federal Reserve Chair Jerome Powell, the US Dollar saw a drop in demand this morning as US Treasury bond yields fell. But with the growing policy divergence between the Fed and other central banks, boosted by yesterday’s hawkish speeches, the ‘Greenback’ made a strong recovery.

Powell, addressing the ECB Forum yesterday in Portugal, reiterated the Fed’s aggressive stance on rate hikes and stated that the central bank will do whatever is necessary to bring inflation down:

‘The clock is kind of running on how long will you remain in a low-inflation regime. The risk is that because of the multiplicity of shocks you start to transition into a higher inflation regime, and our job is to literally prevent that from happening and we will prevent that from happening.’

The rising fears of a global recession have provided a renewed boost to the US Dollar as central bank’s priorities have shifted to taming inflation over protecting economies.

GBP/USD Exchange Rate Forecast: UK Economic Slowdown to Pressure Pound?

Looking forward, the Pound could come under further pressure if manufacturing PMIs print as forecasted. With an expected lower expansion than May, further clues to the UK’s economic slowdown could weigh on Sterling, as would the continued Brexit and political troubles.

Elsewhere, a flurry of US data is due out today. The US Dollar could see further upside as initial jobless claims are expected to fall again for the fourth consecutive week, indicating a tighter labour market.

The Personal Consumption Expenditures (PCE) price index is due out later today, and as the Fed’s preferred measure of inflation, an expected uptick could boost investor’s hopes for an aggressive rate hike.

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