The GBP/USD exchange rate remained within constricted ranges yesterday as the pair failed to maintain beyond 1.2100 before settling near 1.2085 today (Wednesday).
Sterling drifted lower, whereas the GBP-EUR exchange rate dripped to two-week lows beneath 1.1820 before a slight revival to 1.1840. Generally, ranges remained narrow during summer trading as markets waited for the crucial United States inflation data.
UK Energy Worries Magnify
UK gas prices recorded a slight decline this week. However, expectations of retail energy prices come next continued to scale up, intensifying fears about an economic squeeze.
The energy supplies security deteriorated further following reports that Norway would reduce electricity exports for hydroelectric water preservation. Also, concerns about France cutting exports to the United Kingdom prevail.
MUFG believed yesterday’s reports for the UK’s blackout agreement this winter further confirmed the macroeconomic challenges of energy crises. It noted that the United States remained less prone to the energy crisis.
And that tends to push GBP-USD lower. MUFG added that the pound was the second worst performing among G10 currencies (so far) this month and that performance could prevail in the upcoming weeks.
Fiscal Pressures Intensify
Fiscal policy will mean more uncertainty, especially with massive pressures coming from the surged energy prices and recent projections of sharper price surges early next year.
The government will see pressure to offer amplified monetary support to households while considering the elected new Prime Minister.
Colin Asher, a senior economist, stated that a massive uncertainty over GBP is the financial policies of the new government. The market will likely see substantial monetary losses.
However, how that will fare remain debatable. He added that bills surging to match current suggestions would mean reliable income to support at the scale’s lower end.
Broad Policy Uncertainty Prevails
The United Kingdom data indicates susceptibility in consumer spending as households respond to the ongoing price surges and the expected sharp energy costs increases.
HSBC trusts the outlook remains of price upticks and substantial retail volumes slump. Moreover, the scale of monetary support will have a crucial effect on the Bank of England’s financial policies and economic outlook.