Pound US Dollar (GBP/USD) Exchange Rate Weighed Down as US GDP Rebounds

Strengthening US Gross Domestic Product Weighs on Pound US Dollar (GBP/USD) Exchange Rate

A sharper-than-expected rebound in the quarterly annualised US gross domestic product prompted a fresh slump for the Pound Sterling to US Dollar (GBP/USD) exchange rate.

As the GDP bounced by an annualised rate of 33.1% in the third quarter this encouraged some confidence in the underlying health of the world’s largest economy, bolstering demand for the US Dollar (USD).

Although the figure points towards an improvement in economic activity over the third quarter, reflecting a recovery in the wake of the initial Covid-19 hit, the strength of the US economy continued to trail behind its previous levels.

In the wake of the collapse of fiscal stimulus package talks the US economy looks set to come under increased pressure, raising the possibility of a fourth quarter slowdown.

Even so, the positive nature of the headline GDP reading was still enough to give USD exchange rates a boost on Thursday.

Jump in UK Mortgage Approvals Fails to Shore up Pound Demand

An unexpected uptick in September’s UK mortgage approvals figure was not enough to shore up demand for Pound Sterling (GBP), meanwhile.

While approvals hit a 13-year high of 91,500 last month this failed to limit lingering anxiety over the outlook of the wider economy.

With the UK government still under pressure to implement tighter restrictions in response to rising Covid-19 infections confidence in the economic outlook remained generally limited.

As the UK has already shown signs of losing its initial recovery momentum the prospect of renewed restrictions raises the odds of a weaker fourth quarter performance, leaving GBP exchange rates exposed to selling pressure.

US Dollar Remains Vulnerable to Presidential Election Outcome

Even so, growing anticipation ahead of next week’s US presidential election could help to limit the downside potential of the GBP/USD exchange rate in the days ahead.

With markets increasingly wary of the potential for a contested result and renewed political turmoil support for the US Dollar looks set to diminish.

However, as long as a sense of market risk aversion persists in the face of US political uncertainty a sense of safe-haven demand may keep USD exchange rates from shedding much ground.

The mood towards the US Dollar could also see an improvement on Friday with the release of September’s US personal income data.

A modest uptick in personal income growth in the last month may offer USD exchange rates a temporary boost, easing concerns over the outlook of US households.

Lack of Brexit Resolution May Weigh on GBP/USD Exchange Rate Outlook

As long as markets continue to lack any sense of clarity over the UK and EU’s future trade relationship this could limit the appeal of the Pound.

Until the two sides reach a formal agreement the lingering threat of a no-deal scenario looks set to drag on GBP exchange rates for the foreseeable future.

With the UK economy already set to come under pressure as a result of rising Covid-19 cases the prospect of additional disruption could keep investors on their toes.

The release of the finalised October UK manufacturing and services PMIs could provoke additional volatility for the GBP/USD exchange rate next week.

Louisa Heath

Contact Louisa Heath