Pound US Dollar Exchange Rate News: GBP/USD Flat in the Face of the UK’s Gloomy Economic Outlook

Modified: Tuesday, 6 December 2022 14:05 BST - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Flat in the Face of the UK’s Gloomy Economic Outlook

GBP/USD Exchange Rate Stalls in Wake of Downbeat UK Headlines

The Pound to US Dollar (GBP/USD) exchange rate traded narrowly on Tuesday as GBP investors focused on the UK’s gloomy economic prospects.

At time of writing the GBP/USD exchange rate traded around $1.2173, virtually unchanged from Tuesday’s opening levels.

Pound (GBP) Muted as the UK’s Economic Outlook Worsens

The Pound (GBP) traded narrowly against other major currencies on Tuesday, hindered by a lack of significant data.

As a result, GBP investors looked to domestic headlines to inform trade. The downbeat news reinforced the UK’s gloomy economic outlook, leaving the Pound with little support.

The hospitality sector is the latest to be affected by the cost-of-living crisis. Industrial action over real pay and working conditions are hindering Christmas sales. According to UKHospitality rail strikes have cost the hospitality sector an estimated £1.5 billion in sales, as consumers struggle to navigate disrupted public transport.

Commenting on the situation Kate Nicholls, Chief Executive of UKHospitality said:

‘These further rail strikes will be hugely damaging for hospitality businesses, their workers and their customers as it seems almost guaranteed that we will be facing a heavily disrupted Christmas for the third year in a row’.

Inflationary pressures are the root cause, with consumers watching their wallets as their purchasing power depletes. Real wages continue to lag behind soaring inflation, stoking industrial action, which in turn, hinders business growth. This tightening cycle caused by the cost-of-living crisis kept the Pound muted on Tuesday.

US Dollar (USD) Upside Limited by Tepid Market Mood

Meanwhile, the US Dollar also found its gains limited on Tuesday as risk sentiment began to shift, creating a mixed market mood.

Further news from China contributed to the tepid market mood. On Monday, risk-on flows dented USD as China revealed plans to ease Covid restrictions. On Tuesday Beijing, China’s capital, dropped strike Covid testing polices.

China heading towards re-opening would be good for its economy and global trade, factors which would typically feed risk appetite. However, concerns that a rapid re-opening could trigger a surge in Covid cases are limiting optimism and preventing USD from wracking up further loses.

Focusing on the US, a combination of cashing in and a lack of data saw USD’s potential capped. Following yesterday’s successful non-manufacturing PMI and risk-on mood, investors have consolidated their gains, leaving the US Dollar struggling to find its footing.

GBP/USD Exchange Rate Forecast: USD to Remain Sensitive to Market Mood?

Looking ahead, the Pound US Dollar exchange rate may continue being driven by risk appetite amid a lack of impactful data. USD could be dented if optimism around China’s rolling back of Covid restrictions continues.

There is also a lack of impactful data for the UK on Wednesday, leaving the Pound struggling for support as investors continue focusing on domestic headlines relating to the cost-of-living crisis and UK recession woes.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Dollar Forecasts