Mixed UK GDP Report Leaves GBP/USD Grounded

GBP/USD Exchange Rate Rangebound as UK Economy Contracts in August

The Pound Sterling to US Dollar (GBP/USD) exchange rate is trading in a narrow range this morning as markets react to the UK’s latest GDP figures.

At the time of writing the GBP/USD exchange rate is trading at around $1.2232, virtually unchanged from the morning’s opening levels.

Pound (GBP) Subdued on Mixed GDP Figures

The Pound (GBP) is steady this morning, in response to some mixed domestic GDP figures.

According to data published by the Office for National Statistics (ONS) domestic growth slumped 0.1% in August, the first monthly contraction since April.

But it wasn’t all negative, with the ONS reporting the UK economy expanded by 0.3% in the three months to August after growth in the previous two months was revised higher.

Barring an exceptionally weak performance in September, it’s likely that the UK will avoid slipping into a recession in the third quarter.

The ONS’s head of GDP Rob Kent-Smith said:

‘Growth increased in the latest three months, despite a weak performance across manufacturing, with TV and film production helping to boost the services sector.’

US Dollar (USD) Muted Ahead of US-China Trade Talks

The US Dollar (USD) finds itself on the defensive this morning as markets brace for the start of high-level trade talks between the US and China later today.

US President Donald Trump has said he hopes the two sides will be able to agree upon a ‘comprehensive deal’.

However the atmosphere surrounding the talks has soured over the past couple of days. The US announced it would be blacklisting 28 Chinese firms and well as imposing visa restrictions on Chinese officials reportedly involved in human rights violations in China’s Xinjiang province.

Despite this Beijing has stated it is still interested in signing a ‘partial trade deal’, with China purchasing more US agricultural exports in exchange for a moratorium on further US tariffs.

The recent US slowdown has been largely attributed to the trade dispute, so the agreement of an interim deal should prove positive for the US Dollar.

GBP/USD Exchange Rate Forecast: Investors Eye Johnson-Varadkar Brexit Meeting

Also sure to influence the Pound US Dollar (GBP/USD) exchange rate today will be a face-to-face meeting between Boris Johnson and Irish Taoiseach Leo Varadkar.

Suggesting that the UK may not be ready to throw in the towel on Brexit talks just yet, the meeting is to allow for ‘detailed discussions’ on how a deal can be secured.

Ahead of the talks, Johnson has said he is still ‘cautiously optimistic’ that a deal can be reached.

But Varadkar may take some convincing, after he suggested earlier this week it would be ‘very difficult’ for a Brexit agreement to be reached.

Most observers agree that the prospect of a deal appears remote, and absent a major breakthrough in today’s meeting, any upside in Sterling looks unlikely.

USD investors will also have domestic CPI figures to contend with today.

While the main focus will no doubt be on the US-China trade talks, could a strong inflation reading give the US Dollar a leg up this afternoon?

Matthew Andrews

Contact Matthew Andrews