GBP USD Exchange Rate Rallies Amid Improving Risk Appetite

The pound hovered around the 1.20 benchmark against the dollar on Monday morning after dismal data from the end of last week perpetuated concerns about slowing UK economic growth. Without any new data to provide it with direction, the UK currency remained stuck in neutral.  

Britain’s businesses posted their slowest pace of growth last month since February 2021. Meanwhile, inflation pressures eased, according to an industry survey. 

The UK currency eventually rallied as risk appetite returned to currency markets, boosting riskier currencies like the pound. 

British Foreign Secretary Liz Truss and former Chancellor Rishi Sunak announced plans over the weekend in their bid to succeed Boris Johnson as Britain’s next prime minister. 

Truss currently tops the polls among Conservative Party members who will appoint their new leader in September. She said she would focus on encouraging economic growth amid soaring inflation and recession fears. 

US Dollar slips as risk sentiment wanes

On Monday, the safe-haven dollar was at the sharp end of declining risk sentiment. Investor concerns about the impact of an interest rate hike this week exacerbated the currency’s below-par start to the week. 

The US Federal Reserve gears up to deliver a 75 basis point (bps) rate hike at its two-day policy meeting on Tuesday and Wednesday. However, a supersized 100 bps rise could be in the offing later this year after data last week showed inflation hit 9.1% year-on-year in June. 

Data from the Federal Reserve Bank of Chicago showed growth in the US continues to slow. The Chicago Fed’s national activity index – a composite of data that provides a good snapshot of the economy’s direction – came in at -0.19 points for June. May’s reading was also revised down to -0.19. 

Speaking on Sunday, US Treasury Secretary Janet Yellen said a recession was not set in stone despite slowing economic growth. 

“This is not an economy that is in recession,” said Yellen. “But we’re in a period of transition in which growth is slowing, and that’s necessary and appropriate.” 

Looking ahead at data sets for US economy

Economic data is thin for the UK this week. The first numbers published arrive overnight on Tuesday when the British Retail Consortium (BRC) Shop Price Index lands. 

Four notable data sets will release from the US economy on Tuesday: 

• The housing price index from the Federal Housing Finance Agency 
• S&P/Case-Shiller home price indices 
• New home sales from the US Census Bureau 
• Consumer confidence for June from the Conference Board 

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