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Pound US Dollar Exchange Rate News: GBP/USD Slips on Risk-Off Sentiment amid Recession Fears

July 1, 2022 - Written by John Cameron

US Dollar (USD) Firms amid Risk-Off Sentiment

The US Dollar (USD) is buoyed against most of its rivals today after mounting recession fears weigh on the global economy as safe-haven flows continue to rise.

Despite softening inflation data for the US yesterday, the ‘Greenback’ firmed again today as recession fears continue to spook investors as they flock to safe-haven currencies. Supported by the Federal Reserve’s continued policy divergence against the more dovish central banks, The US Dollar could remain strong going forward.

In the wake of the European Central Bank (ECB) Forum in Portugal this week, Fed Chair Jerome Powell rallied investors as further rate hike bets were bolstered as confidence in the resilience of the US economy was noted, citing it is well-positioned to handle further rate hikes. Powell appeared hawkish in his speech:

‘The U.S. economy is actually pretty strong, (with) very, very high job growth. Households are in very strong financial shape, (and businesses) show very, very low rates of default.’

‘Overall, the U.S. economy is well positioned to withstand tighter monetary policy.’

Capping any further gains today could be the release of the latest ISM manufacturing data, an expected drop in the manufacturing sector could weigh on the US Dollar.

Pound (GBP) Softens amid Darkening Economic Outlook

The Pound (GBP) is softening today as June’s finalised manufacturing PMI printed lower than initial estimates, highlighting the shrinking economy. A third consecutive month of shrinking growth further highlights a slowing UK economy.

Growth in the manufacturing sector came in lower than the flash estimates at a two-year low of 52.8, compared to 54.6 in May. The protracted war in Ukraine and raw material shortages combined with a weaker economic outlook resulted in a reduced demand.

Meanwhile, political turmoil persists as yet another Conservative MP has resigned in disgrace from his post. Chris Pincher resigned from his position of deputy whip after reports that he drunkenly groped two men at a private club in London. This comes after the Conservative party recently lost key seats after two MPs resigned in disgrace. Labour’s Yvette Cooper said of the continued misconduct of the Tory party:

‘I think the idea that the Conservatives can try and simply dismiss this is just unacceptable.

‘They have to show they take this kind of thing more seriously. Time and again Boris Johnson just doesn’t. That is not good enough. This is about standards in public life.’

The growing discontent surrounding Boris Johnson’s leadership is weighing on the Pound, and the continued political uncertainty doesn’t bode well for Sterling going forward.

Meanwhile, the continued tensions of Brexit and the altering of the Northern Ireland protocol could trigger a potential trade war with the EU. With expectations of the Bank of England (BoE) adopting a more gradual approach to raising interest rates, the Pound could be under increased pressure in the near future.

GBP/USD Exchange Rate Forecast: Market Sentiment to Weigh Further on the Pound?

Looking ahead, a string of key US data releases could influence the ‘Greenback’ as all eyes will be on the ISM manufacturing PMI is set to print at 54.9, the lowest since June 2020 and a drop from last month’s 56.1.

With no major data for the Pound for the rest of this week, market movement will be dictated by sentiment alone, and with the continuing political and social mire that the UK finds itself in, the Pound could be set to slide further.

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