Lacklustre UK Gross Domestic Product Leaves Pound US Dollar (GBP/USD) Exchange Rate on Weak Footing
The Pound Sterling to US Dollar (GBP/USD) exchange rate struggled to hold onto a positive footing this morning as UK growth data failed to impress.
While markets had not expected to see any upward revision to the finalised fourth quarter gross domestic product figures they still offered little in the way of support to Pound Sterling (GBP).
Confirmation that the quarterly growth rate stalled even before the Covid-19 crisis broke out suggests that significant pressure is still in store for the UK economy.
Fresh analysis from the Resolution Foundation gave investors little cause for confidence, with the think-tank highlighting the odds of a sharp economic downturn.
Early survey indicators of economic activity suggest that GDP is set to fall by 0.5 per cent this quarter (Q1) and by more than 2 per cent next quarter (Q2). If realised, that would be a steeper decline than seen during the 2008/09 financial crisis. pic.twitter.com/f82NbWeCx0
— Resolution Foundation (@resfoundation) March 31, 2020
Rebound in Chinese Economic Activity Fails to Dent US Dollar Demand
Although market risk aversion showed some signs of easing in the wake of positive Chinese factory data this was not enough to drag the US Dollar (USD) lower at this stage, meanwhile.
While the Chinese manufacturing and services PMIs delivered an impressive rebound in March, with the latter leaping from 29.6 to 52.3, this failed to fuel any major shift in investor sentiment.
As the PMIs are considered a soft form of data it remains to be seen whether the Chinese economy has truly started to recover from the impact of the Covid-19 shutdown just yet.
With the global economy still on track to experience a major downturn as the number of infections continues to pick up worldwide the US Dollar held onto a positive footing.
GBP/USD Exchange Rate Vulnerable to Negative Revision to UK PMIs
Support for the Pound could weaken in the days ahead if March’s finalised UK manufacturing and services PMIs confirm a sharp loss of economic momentum.
As long as evidence continues to point towards a significant first quarter slowdown GBP exchange rates could struggle to find any fresh traction this week.
Given that the initial PMI readings failed to reflect the impact of the recent lockdown, though, the potential for a negative revision remains.
Any downgrade to the figures may see the GBP/USD exchange rate take a fresh leg lower, falling further away from its two-week high.
Weak US Payrolls Report Forecast to Weigh Down US Dollar
The US Dollar may come under pressure ahead of the weekend, however, with the release of the latest US non-farm payrolls report.
After the sharp increase in initial jobless claims seen last week investors are wary of the potential for a major drop in the headline non-farm payrolls figure.
Evidence that the US labour market loosened significantly this month could see USD exchange rates come under pressure, even in the face of lingering global economic worries.
Unless the jobs data can demonstrate greater resilience this could offer the GBP/USD exchange rate a solid boost on Friday.