The British Pound Latest: GBPUSD Pushing Higher on US Dollar Weakness
The British Pound Latest: GBPUSD Pushing Higher on US Dollar Weakness
The UK economy logged a technical recession in December, avoiding a full-fledged one by logging zero growth in the month. While this doesn’t mean the UK is in a full-fledged recession, it does make for some worrying market headlines, especially as the Bank of England prepares to hike interest rates in an effort to contain high inflation.
A weaker pound will put pressure on household spending, with consumers likely to feel the pinch more as prices for energy bills and food rise. This could also lead to a further drop in the economy, causing the Bank of England to raise interest rates faster than expected.
Another factor that could weigh on the pound is a lack of confidence in the economy, which has been a key driver of speculative selling of the pound for years. The latest fall in confidence, prompted by the government’s tax plans, has been the trigger for a sharp drop in the value of the British pound against the dollar.
The pound sank as low as $1.04 on Monday, its lowest level in more than three decades, before reversing course and trading around $1.03. The move was driven by global investors’ resounding rejection of the new government’s tax cuts and borrowing, which were pushed through under Chancellor Kwasi Kwarteng’s “mini-budget” announced on Friday.
Those concerns over the government’s tax plan have been a big part of the reason that investors are selling the pound and pushing up the cost of government bonds. The pound is now worth about 5% less than it was at the start of January, which is the lowest since 1985.
There are also a number of other factors that are weighing on the British economy and are driving down the pound. These include the fact that the government’s new tax cuts haven’t been funded and the broader risk of a global recession.
These factors have all played a role in driving down the value of the British currency against the US dollar. The pound is also suffering due to its status as a small open economy, which means that it can easily lose ground to other major currencies in a period of weakness.
It is therefore important to watch how the British pound performs relative to its counterparts in other parts of the world, which will help to assess the currency’s strength and weakness. In particular, it is important to consider how the UK performs in a period of strong and weak growth, as well as when other countries are experiencing economic turmoil.
While the pound is currently trading around 1.1000 against the US dollar, it has been volatile in recent months and is expected to weaken more as global risk sentiment remains low. Moreover, the USD is still very much strong against the British pound largely as a result of widening interest rate differentials. This could mean that the pound will eventually test parity with the US dollar and perhaps even lower, as market speculators try to buy the USD and sell the pound
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