Home Daily Commentaries GBP/USD falls to lowest level since Sept 2020

GBP/USD falls to lowest level since Sept 2020

Daily Currency Update

GBP/USD has been on a rapid decline over recent weeks as a confluence of factors push the pound lower. Global risk aversion on the back of the Russian invasion of Ukraine is seeing investors shun the pound for the safety of the US dollar. Not helping the pounds cause is last weeks dreadful retail sales numbers for March which printed far lower than expectations. There are concerns that after a strong 2021 the UK economy is slowly grinding to a halt as the spending squeeze starts to hit consumers. This economic slowdown and high inflation or "stagflation" as it is known is going to prove a real conundrum for the Bank of England at its interest rate decision next Thursday. Usually hiking rates, as they are expected to do, would benefit a currency however hiking rates in the face of a slowing economy could actually be detrimental to the pound. A lot of focus will be around Bank of England Governor Andrew Bailey's messaging and his confidence whether the UK can ride out the wave of high prices and higher borrowing costs without putting the economy into reverse. These concerns along with persistent dollar strength means GBP/USD is around the 1.27 level at the moment with further losses on the cards if geopolitical factors continue to see the dollar sought. GBP/EUR is holding up however due to a weak euro. GBP/EUR trades around 1.19

Key Movers

Another reason for GBP/USD taking another leg lower over the past couple of trading days is the prospect that the Chinese government is about to lockdown Beijing after a spike of Covid-19 cases were detected there. The Chinese are persisting with a zero Covid policy despite the ultra-high transmissibility of the Omicron variant unlike most other major global economies. The impact this could have on inflation as it causes yet more supply chain problems is causing deep concern to global investors with stock markets around the world taking a dive and the usual safe havens such as the US dollar sought. Next week the US Federal Reserve could raise interest rates by 50bps and signal they are prepared to do one or two more 50bp hikes in upcoming meetings to try and get inflation that is at a 40 year high under control asap. Those hoping for some euro strength on the re-election of Emmanuel Macron as President of France would have been sorely disappointed as it appears his win was already priced in to its value and the prospect of yet more lockdowns in China sent shockwaves through the markets. EUR/USD is now back under 1.07.

Expected Ranges

  • GBP/USD: 1.26 - 1.2770 ▼
  • GBP/EUR: 1.1840 - 1.1965 ▲
  • GBP/AUD: 1.7585 - 1.7770 ▼
  • EUR/USD: 1.06 - 1.0740 ▼