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Pound US Dollar Exchange Rate News: GBP/USD Dips amid a Deteriorating Global Outlook

July 5, 2022 - Written by John Cameron

Pound (GBP) Weakens as UK and Global Outlook Continues to Deteriorate

The Pound (GBP) is sliding today as the Bank of England (BoE) released its annual Financial Stability Report, outlining how the economic outlook has deteriorated materially. The BoE warned that the outlook for both the UK and the global economy is very uncertain, with several risks likely to affect the financial stability of the UK.

With the soaring price of goods ranging from food to energy, exacerbated by the Ukraine invasion, tough times are expected for the UK. The report goes on to say:

‘Like other central banks around the world, we have increased interest rates to help slow down price increases. Markets have been volatile and financing conditions have tightened.

‘These higher prices, weaker growth and tighter financing conditions will make it harder for households and businesses to repay or refinance debt. Given this, we expect households and businesses to become more stretched over coming months. They will also be more vulnerable to further shocks.’

Investors are understandably worried, and the BoE’s latest financial report only highlights the dovish stance the central bank has taken as it attempts to rein in inflation without triggering a recession.

Elsewhere, capping any further losses for the Pound is the final printing of services PMI for the month of June. An upward revised figure shows the sector expanded larger than expected. He services sector expanded by 54.3, above a forecasted 53.1.

Meanwhile, Prime Minister Boris Johnson is under pressure once again, as allegations that he was in fact aware of prior allegations against disgraced MP Chris Pincher have surfaced. Following from Pincher’s resignation after drunkenly groping two men at a club in London, Johnson has claimed he was not aware of any prior allegations.

Simon McDonald, a former top civil servant, has written to the Parliamentary Commissioner for Standards over claims that ‘No. 10 keep changing their story and not telling the truth.’ With the ongoing political turmoil surrounding Johnson and his government, pressures will continue to pile on the Pound.

US Dollar (USD) Strengthens amid Safe-Haven Flows

The US Dollar (USD) is strengthening against its rivals today as the US Dollar Index reaches its highest levels in almost 20 years above 105.50. With the worsening global economic weighing on investor’s minds has seen a rise in risk-off sentiment and safe-haven flows.

Lending further support to the ‘Greenback’ has been the reports that US President Joe Biden’s administration are planning to roll back strict tariffs on Chinese imports to alleviate inflationary pressures.

With China showing improvement across both the services and manufacturing sectors for the month of May, a resumption of the world’s second largest economy also provides support to the US Dollar as it looks to continue strengthening its economy.

The Federal Reserve’s maintained hawkish stance has continued to lend considerable support to the US Dollar. Fed Chair Jerome Powell commented last week that the central bank is committed to aggressive rate hikes and reassures investors that the US economy is resilient enough to support such moves.

Combined with the darkening global economic landscape and the risk-off sentiment, safe-haven currencies such as the ‘Greenback’ will likely see continued support going forward.

GBP/USD Exchange Rate Forecast: Dovish BoE to Further Weigh on Pound?

Looking forward, the US Dollar could see further movement as a flurry of key data is released this week, including the ISM non-manufacturing PMI and JOLTs job openings printing tomorrow.

Meanwhile, the Pound could see further slips as several BoE speeches are planned over the next several days. The balancing act of reining in inflation and preventing a recession could concern investors if the central bank continues its dovish stance.

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