Pound US Dollar Exchange Rate News: GBP/USD Wavered as UK Energy Crisis Weighed Heavy

Modified: Friday, 26 August 2022 13:05 BST - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Wavered as UK Energy Crisis Weighed Heavy

Pound (GBP) Under Pressure amid Mounting Cost-of-Living Crisis

The Pound (GBP) failed to find much demand on Friday as Ofgem, the UK’s energy regulator announced the energy price cap to rise by 80% and hit £3449 from October.

With the cost-of-living crisis worsening after inflation breached 10.1% last month, UK households will come under increased pressure as energy bills are to skyrocket. Concerns have been growing for some time of the government to intervene and help alleviate the cost-of-living pressures on UK households, with Chancellor of the Exchequer Nadhim Zahawi saying that fiscal support is on its way, saying:

‘I am working flat out to develop options for further support on energy bills.

‘This will mean the incoming Prime Minister can hit the ground running and deliver support to those who need it most, as soon as possible.’

The increased energy price cap, which will have trebled in a year by the time October comes around, is threatening to plunge millions of citizens into poverty. Many analysts and experts are calling for a one-year prize freeze on the energy cap, which could cost the UK over £60billion, almost as much as the Covid furlough scheme.

Jonathan Brearley, Chief Executive of Ofgem, warned that surfing energy bill prices will be a major issue, and that the government will have to act swiftly, he said:
‘This is a major set of decisions that the new government will need to make, that the new prime minister and his or her ministerial team will need to make. It’s not for me to comment on the proposals that are out there for politicians.

‘My point is very simple, it is going to need to be taken urgently and it’s going to need to be decisive. And it’s going to need to match the scale of the problem that we see - which version of that that the Government chooses to pursue really is a matter for them.’

Meanwhile, UK bus users are bracing for ‘significant’ price rises as the cost of fuel continues to surge. Phil Southall, senior executive at Go Ahead, one of the largest bus operators in the UK, has warned of a substantial increase in bus fares as companies start locking in fuel purchases for the next year:

‘That’s when it will hit us, when you come to negotiate the price, then the only option is to pass that on to customers. It will be at least a 10 per cent increase in fares, because you have no other option.’

With the government slow to react to the unfolding crisis, the Pound could remain under pressure amidst a growing number of headwinds weighing it down. The continued political uncertainty, social unrest and now the unfolding cost-of-living crisis, there are fears that Sterling could be heading towards parity with the US Dollar.

US Dollar (USD) Wavers as Cautious Investors Await Fed Speech

The US Dollar (USD) remains subdued on Friday as the market switches its attention to the Jackson Hole symposium in Wyoming. Federal Reserve Chair Jerome Powell will be set to take the stand and give a speech.

Despite expectations that the Fed policymaker will strike a hawkish tone when it comes to monetary guidance moving forward, investors are reluctant to place any bets just yet. With multiple signs of the US economy slowing, any caution in Powell’s speech is likely to spook the market.

GBP/USD Exchange Rate Forecast: Hawkish Fed Speech to Spur the US Dollar?

Looking ahead, all eyes will be on the Jackson Hole symposium as Powell is set to make a speech. Any further hints to the Fed’s aggressive, or lack thereof, tightening cycle could see the US Dollar shift dramatically.

Elsewhere, with domestic woes dominating both UK headlines and the Pound, Sterling could see a much-needed boost if fiscal plans are finally revealed from the government.

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