Pound US Dollar Exchange Rate News: GBP/USD Wavered on Returning UK Domestic Woes

March 1, 2023 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Wavered on Returning UK Domestic Woes

Pound (GBP) Undermined by Weakening Housing Market

The Pound (GBP) lost its momentum from post-Brexit trade deal optimism as a flurry of domestic woes returned to the forefront. Economic data released on Wednesday morning highlighted the cost-of-living crisis that is gripping the UK economy.

House prices tumbled at the fastest rate since 2012, and on a yearly basis fell for the first time since the height of the Covid pandemic. Slipping by 1.1% YoY, concerns of the housing sector struggling in the near future could be weighing heavily on Sterling. Victoria Scholar, Head of Investment at Interactive Investor, said of the latest data:

‘The housing market is struggling under the weight of lacklustre economic growth, a softening consumer, falling real wages, and rising mortgage rates as the Bank of England continues to raise rates.’

Elsewhere, shop price inflation soared to a fresh record high of 8.4%, highlighting the cost squeeze that is gripping both retailers and consumers. The latest figure points to the highest increase since records began in 2005. With interest rates soaring, and inflationary pressures unrelenting, GBP investors could be concerned.

However, lending some modest support to the faltering Pound, was a speech from Bank of England (BoE) Governor Andrew Bailey. Speaking at a cost-of-living conference in London, Bailey warned of future interest rate hikes may be appropriate. He added:

‘I would caution against suggesting either that we are done with increasing bank rate, or that we will inevitably need to do more. We will reach our conclusions with a determined focus on achieving the 2% inflation target on a sustained and lasting basis.

‘Inflation has been slightly weaker, and activity and wages slightly stronger, though I would emphasize ‘slightly’ in both cases, (as the) UK labour market remains very tight.’

US Dollar (USD) Falters amid Buoyant Global Market Mood

Meanwhile, the US Dollar (USD) struggled to capitalise on the Pound’s weakness and found itself failing to find demand on Wednesday. Better-than-expected data from China significantly buoyed market sentiment and saw waning demand for safe-haven currencies.

The world’s second largest economy saw a much-improved economic recovery as both manufacturing and service sectors registered impressive gains. After several months of contracting or stagnating activity, both sectors surprised to the upside. Dr Wang Zhe, Senior Economist at Caixin, said of the latest data:

‘In a nutshell for February, the economy saw a faster pace of recovery following a peak in the recent wave of Covid infections as supply and demand expanded, overseas demand surged, employment started to rebound, and logistics recovered at a faster pace.’

GBP/USD Exchange Rate Forecast: Improving Manufacturing PMI to Dent the Greenback?

Looking ahead, the Pound US Dollar exchange rate could see further movement with the release of ISM manufacturing PMI for the US. With an expected contraction, despite a predicted improvement, could still hamper rate hike bets from the Federal Reserve.

Meanwhile, the Pound could continue to trade on market sentiment until tomorrow’s speech from BoE Chief Economist Huw Pill. A continued hawkish stance from the central bank could provide a much-needed boost for Sterling.

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