Pound US Dollar Exchange Rate News: GBP/USD Soured as Economists Warned of Global Recession Danger

January 16, 2023 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Soured as Economists Warned of Global Recession Danger

Pound (GBP) Softened amid Mounting Economic Fears

The Pound (GBP) struggled for demand on Monday morning amid a lack of economic data left Sterling exposed to a flurry of external factors. Taking a break from the usual domestic woes, Sterling looks to be under pressure from mounting fears of a global recession once more.

According to senior economists, the global economy is expected to fall into recession in 2023. With the World Economic Forum (WEF) set to get underway at Davos, Switzerland, it will be the first time world business leaders and politicians have met since the pandemic. Surveyed by the WEF, the majority of chief economists expect a global recession in 2023. Saadia Zahidi, WEF’s Managing Director said:

‘The global economy is in a precarious position. The current high inflation, low growth, high debt and high fragmentation environment reduces incentives for the investments needed to get back to growth and raise living standards for the world’s most vulnerable.’

Meanwhile, continuing to weigh on the Pound is Brexit. Despite appearing to be closer to a deal, a spokesperson for Prime Minister Rishi Sunak has conceded that there are gaps between the UK and the EU on Brexit talks. The spokesperson commented:

‘Significant differences remain between Britain and the European Union in talks over how to resolve the post-Brexit trade row relating to Northern Ireland.’

US Dollar (USD) Undermined by Slowing Rate of Rate Hike Bets

Meanwhile, the US Dollar (USD) gathered strength against the Pound despite the dovish turn from the Federal Reserve.

In the wake of softening inflation, the sixth consecutive decline, interest rate hike bets have been pared. A mixed market mood on the back of an improving global market sentiment saw demand wane for the ‘Greenback’.

The expectations of modest rate hikes continued to weigh on the US Dollar as odds of a 25bps rate hike at the next meeting are all but baked in. The chances of another modest increase at the March meeting currently sit at 80%, reflecting the slowing rate cycle.

However, with a mixed market mood, especially with concerns over the looming global recession, the ‘Greenback’ enjoyed some tailwinds in the form of safe-haven flows.

GBP/USD Exchange Rate Forecast: BoE Governor Bailey to Buoy Sterling?

Looking ahead, and the Pound US Dollar exchange rate could see further fluctuations when Bank of England (BoE) Governor Andrew Bailey is set to testify before the Treasury Select Committee with the Financial Stability Report (FSR). As the UK’s economy unexpectedly grew 0.1% in November, any further hints towards the central bank’s monetary policy could influence the pairing.

Meanwhile, the US Dollar could be left open to market sentiment. A waning risk appetite could see the ‘Greenback’ regain its losses as global recession fears continue to mount.

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TAGS: Pound Dollar Forecasts