GBP/USD collapses to eight-month low amid UK fuel shortage crisis

The pound fell off a cliff on Tuesday, with the currency plummeting over 1% against the US dollar as fears over a UK fuel shortage triggered an aggressive selloff.

Sterling looks to be licking its wounds so far this morning, with GBP/EUR muted at €1.1585 and GBP/USD dipping to $1.3504. GBP/CAD and GBP/NZD are holding steady at CA$1.7146 and NZ$1.9465 respectively, while GBP/AUD retreats to AU$1.8657.

Looking ahead, will a drop in Eurozone economic sentiment put some pressure on the euro this morning?

What’s been happening?

The pound nosedived through yesterday’s trading session, as GBP investors were spooked by the potential economic impact of the UK’s shortage at the fuel pumps.

With 90% of the country’s petrol stations reporting a shortage of fuel, and the panic buying showing no signs of abating, GBP investors grew increasingly concerned over the potential economic consequences, if workers and businesses find themselves starting to run dry.

Analysts warn that should the shortages persist into next week, the UK’s already shaky economic recovery could be further undermined.

The US dollar, meanwhile, enjoyed solid support on Tuesday, with investors flocking to the safe-haven currency as a bearish market mood prevailed.

Theis upside in the US dollar was reinforced by Federal Reserve Chair Jerome Powell as he reiterated the bank’s intentions to begin tapering its asset purchases in his latest testimony before Congress.

At the same time, the euro’s negative correlation with the US dollar, coupled with concerns over Europe’s energy price crisis undermined EUR exchange rates and limited the single currency gains against its other peers.

What’s coming up?

Coming up this morning, we have the publication of the Eurozone’s latest consumer sentiment index.

September’s figures are expected to report that economic sentiment weakened again this month, but with the index expected to remain close to historic highs, any downside in the euro could prove limited.

A scheduled speech from Bank of England (BoE) Governor Andrew Bailey could offer the pound some respite later this afternoon, if Bailey drops additional hints that the BoE could hike interest rates early next year.

Finally, in the absence of any notable USD data releases, movement in the US dollar may continue to be dictated by market sentiment, potentially leading the ‘greenback’ to appreciate further if risk appetite continues to weaken.