Recession fears grow globally

GBP

The pound hit twenty-one-month low as US dollar hits two-decade high against other major currencies. The pound dropped against USD as concerns over the UK’s economic health continue to grow. Traders are anxious as the British economy is being hit by weak consumer confidence, a cost of living crisis, rising input costs and supply chain disruption.

The global economy looks to be heading into a downturn which could lead to recession later in the year. Europe looks like it will inevitably fall back into recession should the war in the Ukraine continue to escalate and if Germany finally decides to pull the plug on Russian oil and gas supplies.

The month of May will be pivotal for the pound. Ahead of the Bank of England’s policy meeting, Sterling has been under immense pressure. The market is now focused on whether the BoE will raise interest rates by 50 basis points or whether they decide on a more gradual rise of 25 bps.

EUR

The euro has also weakened, on concerns over the eurozone economy if gas supplies from Russia are cut off. The only data of note today will be euro CPI and German GDP.

USD

The dollar index hit a twenty-year high against a basket of currencies yesterday and extended its recent surge against its peers as traders anticipate sharp increases in US interest rates this year.

Yesterday saw US GDP shrank in the first three months of the year, contracting by -0.4% in the first quarter, or -1.4% on an annualised basis – its weakest quarter since the early days of the pandemic. The latest report was worse than economists had expected and was compiled as the war in Ukraine triggered oil price rises that are still working their way through the economy and before China imposed new coronavirus lockdowns that may worsen supply chain problems. China’s growth has slowed significantly due to multiple lockdowns, which more recently have brought Shanghai to a standstill.

US consumer prices are now rising at their highest rate in over forty years.

Key announcements

09:00 – EUR – German Perlim GDP
10:00 – EUR – CPI
13:30 – USD – CPI