GBP USD Exchange Rate Slumps to Lowest Level in a Month

GBP USD Exchange Rate Slumps to Lowest Level in a Month

The pound crashed to its lowest level in a month against the dollar on Monday after the UK economy recorded an unexpected contraction in April, underscoring the UK’s gloomy growth outlook.

Data compiled by the Office for National Statistics showed UK GDP fell 0.3% in April from March – the sharpest fall in over a year – as consumers reined in their spending amid soaring energy bills.

The weak UK gross domestic product (GDP) reading caused the GBP USD pair to fall into the 1.21 range – its weakest level since 13 May.

News that the UK economy shrank in April shoved recession fears back into the spotlight. According to economists, a technical recession – defined by two successive quarters of falling GDP – remains unlikely, but there is little doubt that storm clouds have gathered over the economy in recent months.

Speaking in the wake of the print, Rachel Reeves, the Shadow Chancellor of the Exchequer said: “These figures are extremely worrying and will add to the concern families are still feeling about their finances and the long-term health of our economy.”

Investors have taken flight from the pound as concerns mount that the UK economy will continue to slow against a backdrop of Bank of England (BoE) interest rate rises – with the central bank under pressure to lift borrowing costs at a faster pace than initially planned.

Dollar marches higher

The safe-haven dollar jumped in value on Monday on the back of fears of a global economic slowdown and bets the Federal Reserve will intensify monetary-policy tightening later in the week.

Looking ahead

The ILO unemployment rate – the number of unemployed workers divided by the total civilian labour force – is published in the UK on Tuesday.

The producer price index (PPI) – a closely watched gauge of commodity inflation – is slated for release from the US economy on Tuesday.

All roads lead to interest rate announcements on both sides of the pond for the GBP USD pair this week.

Fed policymakers have all but promised a half-point interest rate hike following the conclusion of its two-day policy meeting on Wednesday. Persistently hot US inflation is underpinning bets that the central bank will become increasingly aggressive in its attempts to cool consumer prices.

The BoE reveals the outcome of its Monetary Policy Committee (MPC) interest rate vote on Thursday, with markets expecting a fifth consecutive hike. The MPC is under pressure to rein in inflation, which is forecast to hit 10% later this year, significantly higher than the central bank’s 2% target rate.

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