Pound Sterling to US Dollar Exchange Rate Forecast: Further Gains Ahead for GBP/USD if More US Data Disappoints?
Update: Despite hitting a 2018 on Tuesday, the Pound Sterling to US Dollar (GBP/USD) exchange rate recovered to near the week’s opening levels during Wednesday trade.
Sterling (GBP) was more easily able to recover against the US Dollar (USD) following the publication of the latest US growth results.
US GDP growth was forecast to have slowed from 2.9% to 2.3% quarter-on-quarter in Q1, but the latest growth projections came in at just 2.2%.
As a result, Federal Reserve interest rate hike bets slipped and the US Dollar was sold from its recent highs.
Pound Sterling to US Dollar Exchange Rate (GBP/USD) Edges Away from Worst Levels Ahead of US GDP Growth Data despite Comments from Former Bank of England Policymaker David Blanchflower
Earlier: Despite a lack of supportive factors in Pound (GBP) trade this week, the Pound Sterling to US Dollar (GBP/USD) exchange rate has edged away from its worst 2018 levels and could recover even further if upcoming US data disappoints investors.
Concerns about Britain’s economy and persistent strength in the US Dollar (USD) pushed GBP/USD down from the week’s opening interbank level of 1.33 to Tuesday’s 2018 low of 1.32. This was the lowest interbank level for GBP/USD since November 2017.
Investors sold the US Dollar slightly from its multi-month highs versus the Pound on Thursday, as markets became anxious that upcoming US growth data could disappoint.
US growth is forecast to have slowed in Q1 2018. As the Federal Reserve took a cautious stance on monetary policy in its latest meeting minutes, even slower-than-expected US growth could knock Fed rate hike bets and make the US Dollar unappealing.
Pound (GBP) Exchange Rate Edges Away from Lows despite Economic Growth, Debt and Brexit Uncertainties
There has been little impetus for Pound Sterling (GBP) movement since last week’s disappointing UK ecostats were published.
Britain’s murky economic outlook was made even more uncertain last week, as UK inflation continued to slow by more than expected and growth was projected to have been just 0.1% in Q1 2018.
With UK inflation slowing and growth also well down from 2017’s trends, markets doubt the Bank of England (BoE) will see much reason to tighten UK monetary policy any time soon.
Earlier in the year, investors were betting the BoE could hike UK interest rates as many as two times throughout 2018.
However, with UK data has continuing to disappoint and Brexit uncertainties persisting, BoE bets have faded. Markets are now uncertain if the bank will hike rates at all before the year is up.
Former BoE policymaker David Blanchflower argued that UK activity will continue to fall:
‘A major concern is that business investment decreased by 0.2% between the final three months of 2017 and the first quarter. Firms are not going to invest when they have no idea what form Brexit will take and not least what will happen in relation to the Irish border.
We should expect this decline to continue, which will be bad for British productivity. Recall that the French still produce in four days what the UK produces in five and this is not going to change any time soon. The UK continues to be the sick man of Europe.’
US Dollar (USD) Exchange Rate Strength Slips on US Growth Uncertainty
The US Dollar (USD) has seen a persistent trend of strong performance in recent months, on expectations that the economy will continue to strengthen and the Federal Reserve will continue to hike interest rates.
However, the Federal Reserve did take a more cautious tone than expected in its latest meeting minutes report. This dampened market expectations that the bank would ramp up the pace of its 2018 interest rate hike plans.
As a result of the Fed’s cautious tone, investors are concerned that upcoming US growth results could come in even lower than forecast.
If US growth slows, investors will further doubt the possibility of four 2018 rate hikes from the Fed and the US Dollar would weaken. This uncertainty weighed on the US Dollar on Thursday morning.
Pound to US Dollar (GBP/USD) Forecast: US Ecostats in Focus
The Pound (GBP) is unlikely to drive GBP/USD movement this week, so the best chance of a recovery in the exchange rate would be in response to underwhelming US ecostats.
Wednesday’s US growth results are only one of the major US ecostats due for publication throughout the second half of this week.
Thursday will see the publication of the US Personal Consumption Expenditure (PCE) results from April. As PCE is the Federal Reserve’s preferred method of measuring inflation, this data could boost Fed bets if it impresses – or cause bets to fall if they disappoint.
May’s US Non-Farm Payroll results will be published on Friday and are even more likely to be influential. If these stats disappoint, the Pound to US Dollar (GBP/USD) exchange rate could see some late-week gains.
Upcoming UK consumer confidence and manufacturing PMI data could influence Sterling slightly. However, as Britain’s economic outlook is still murky, US Dollar strength is more likely to drive the Pound to US Dollar (GBP/USD) exchange rate movement through Friday.