GBP/USD plummets to four-week low amidst UK energy price crisis

The pound tumbled on Monday, as GBP investors were unnerved by the UK’s energy price crisis and its potential impact on the UK’s economic recovery.

Meanwhile, Sterling appears to have found more stable footing so far this morninng, with GBP/EUR flat at €1.1654 and GBP/USD stable at $1.3672. GBP/CAD has slipped to CA$1.7451, while GBP/AUD and GBP/NZD hold steady at AU$1.8812 and NZ$1.9455 respectively.

Looking ahead, will some underwhelming UK industrial data trigger another drop in GBP exchange rates later today?

What’s been happening?

The pound got off to a poor start this week, with the UK’s energy price crisis reigniting concerns over the country’s economic resilience.

With the cost of wholesale gas surging amidst a supply shortage, energy prices in the UK are rocketing higher, resulting in some businesses pausing operations and raising concerns that consumer spending could be hurt if household bills start to rise.

This sapped Sterling sentiment as it the energy price crisis is likely to act as yet another headwind for the UK’s economy in the last quarter of 2021.

The US dollar, meanwhile, struck higher on Monday, with demand for the safe-haven currency being buoyed by a prevailing risk-off mood.

Driving this were concerns over the potential collapse of China’s second largest property developer, Evergrande, which sent ripples through equity markets.

The euro also appreciated during yesterday’s session, with a stronger-than-expected German PPI reading helping to buoy the single currency.

What’s coming up?

Looking ahead, the only data release of note today will be the publication of the Confederation of British Industry’s (CBI) industrial order release.

This is expected to show that new orders slowed this month, potentially placing additional pressure on the pound this morning.

Should the market mood continue to sour we may see the US dollar maintain its upward trajectory through today’s session.

However, the upside potential of the ‘greenback’ could be capped somewhat by USD investors reluctant to make any aggressive bets ahead of the Federal Reserve’s interest rate decision on Wednesday.

Finally in the absence of any notable data, the euro could struggle to find any strong directional bias today, with the single currency potentially left vulnerable to its negative correlation with the US dollar.