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GBP/USD Continues To Decline As UK Recession Concerns Persist
As a result of the BoE's unanticipated 50 basis point (bps) rate hike and slowing global business activity, GBP/USD declines to around 1.27. The US S&P Global Manufacturing PMI falls to 46.3, raising concerns about a potential "hard landing" despite steady economic performance and rate hikes. A decline in consumer confidence and a possible 6% increase in interest rates by the Bank of England exacerbated recession fears in the United Kingdom.
GBP/USD extended its losses in the late New York session, falling around 0.30% to around 1.2700 amid growing recession concerns in the United Kingdom as data indicated a slowdown in business activity. This, coupled with an aggressive 50 basis point (bps) rate hike by the Bank of England (BoE) in response to persistent inflation, weighed on the British pound (GBP). At the time of writing, the exchange rate for the GBP/USD is 1.2709.
Wall Street is expected to end the week in the red. Although readings of business activity in Europe and the United States (US) remained in expansionary territory, they slowed down, sparking concerns of a recession. The US S&P Global Manufacturing PMI decreased to 46.3, below the prior month's data, while the Services and Composite PMI grew by 54.1% and 53.1%, respectively, but both figures fell short of expectations.
Chris Williamson, chief economist of S&P Global Market Intelligence, stated, "The overall rate of expansion of business activity in the United States remained robust in June, consistent with GDP rising at a rate of 1.7% to put second-quarter growth in the region of 2%."
As evidenced by growth, housing, and labour market data, the US economy has performed well despite 500 basis points (bps) of rate hikes. Jerome Powell, chairman of the Federal Reserve (Fed), has emphasised the need for a pair of interest rate increases. However, a deterioration in business activity could lead to a "hard landing."
The US Dollar Index (DXY), a measure of the dollar's value relative to other currencies, rises 0.50 percent to 102.909. US Treasury bond yields continued to decline, preventing the GBP/USD from falling further than 1.2700.
On the UK front, investors were surprised by the BoE's 50 basis point rate increase, while market participants predict rates could reach 6%. In spite of the fact that an increase in interest rates would ordinarily strengthen the currency, concerns of a recession caused a different response.
Consumer confidence declined, and S&P Global/CIPS PMIs expanded more slowly, with the exception of the Manufacturing PMI. Positively, UK retail sales increased unexpectedly in May, aided by an additional bank holiday. However, it also suggested that the majority of consumers struggle with high inflation, which reduces their purchasing power.
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