Pound US Dollar Exchange Rate News: GBP/USD Wavered on Cost of Fiscal Stimulus Package

September 8, 2022 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Wavered on Cost of Fiscal Stimulus Package

Pound (GBP) Under Pressure from Imminent Energy Bill Bailout

The Pound (GBP) struggled for demand on Thursday morning as Prime Minister Liz Truss announced her energy bill bailout plan, set to cost the UK economy more than £130bn.

However, since Truss has ruled out windfall tax on gas and oil producers to finance the relief package, citing:

‘I believe it is the wrong thing to be putting companies off investing in the United Kingdom, just when we need to be growing the economy.’

Investors are becoming increasingly concerned about the medium-term inflationary impacts, as borrowing costs are already at a 10-year high. With many opposing the move, even Conservative voters are backing a windfall tax over the UK having to foot the bill. Ed Miliband, shadow secretary for climate change and net zero, said:

‘We know from the Treasury that there are £170bn of excess profits being made by the energy companies. We believe a windfall tax must be part of the solution to that, that is the fair thing to do, that is the right thing to do.’

‘…In the end, higher borrowing will have to be paid for somehow and it will end up falling back on the British people, and (Truss) leaving money on the table that these companies are making.’

However, the substantial financial support package will go a long way in alleviating the escalating cost-of-living crisis. Which in turn, will lend some considerable support to the UK, and the Pound. Martin Lewis, founder of moneysupermarket.com, has welcomed the fiscal aid. He said:


‘I have said we have a catastrophe coming in winter. By January we expect to see the (energy) price cap to be 120% higher than it is right now, more than double. And my great call has always been that we need to have political will to do something.
‘The great benefits of this policy is that it helps everyone. The great problem with this policy is that it helps everyone. It means wealthy people like me also get our bills cut. But, absolutely big picture, I think we need to welcome that something is being done, and that the political will has changed.’

US Dollar (USD) Strengthened on Maintained Hawkish Fed Stance

The US Dollar (USD) continued to firm against its rivals despite the turnaround in global market mood.

Lending considerable support has been the sustained hawkish rhetoric from Federal Reserve policymakers as tackling inflation remains the number one priority. Expectations of another bold three-quarter point hike have edged up, with the probability now sitting at 82%. A third consecutive rate hike is looking more likely after a string of positive economic data releases. With the next policy meeting approaching, expectations of a bold rate hike are continually bolstering the US Dollar.

Elsewhere, market attention is shifting to the European Central Bank (ECB) interest rate decision later in Thursday’s session. Expectations of a 50bps hike have ben mostly priced in, but with the ever-volatile gas security situation in Europe, if the ECB opt for a smaller rate hike, the negative correlation the Euro shares with the US Dollar could see the ‘Greenback’ boosted.

GBP/USD Exchange Rate Forecast: ‘Trussonomics’ to Boost the Pound?

Looking ahead, the Pound US Dollar exchange rate could see movement once Truss announces plans of how she intends to steer the UK out of economic strife. But with question marks over how it will be funded could still see Sterling plummet.


Meanwhile, Fed Chair Jerome Powell is set to make a speech, and if the central bank maintains its hawkish tone, the ‘Greenback’ could see a boost.

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