Pound US Dollar Exchange Rate Softens as US Gross Domestic Product Betters Forecast

Jump in US Gross Domestic Product Weighs on Pound US Dollar Exchange Rate

The Pound to US Dollar (GBP/USD) exchange rate faltered in the wake of a stronger-than-expected first quarter US gross domestic product reading.

As the quarterly growth rate accelerated from 4.3% to 6.4% in the first three months of 2021 the appeal of the US Dollar (USD) naturally improved.

With the world’s largest economy continuing to demonstrate evidence of resilience even in the face of the ongoing pandemic USD exchange rates were able to find fresh traction across the board.

Although the Federal Reserve maintained a dovish policy outlook at its April policy meeting, intending to keep monetary policy looser for longer, this failed to put a dampener on the US Dollar.

Pound Exchange Rates Look for Rallying Point on UK Housing Price Index

Demand for Pound Sterling (GBP) could pick up on Friday, however, if the Nationwide housing price index strengthens on the month.

After the -0.2% contraction seen in March investors are hoping for signs of a return to growth for the housing market.

As long as house prices show an increase on the month this could help to limit the downside potential of the GBP/USD exchange rate heading into the weekend.

However, if prices contract once again this may leave the Pound vulnerable to a fresh bout of selling pressure in the near term.

Stronger Personal Spending and Income Forecast to Support US Dollar Demand

On the other hand, the US Dollar may find additional support tomorrow if March’s personal spending and income figures increase as anticipated.

Given that both figures saw a decline in February investors expect to see a solid rebound for the final month of the first quarter.

Evidence of increased spending could encourage greater optimism in the economic outlook, with an increase likely to drive further expansion in the service sector.

Confirmation that the Michigan consumer confidence index improved in April may also help to keep USD exchange rates biased to the upside at this stage.

Pound US Dollar Exchange Rate Set for Additional Volatility on UK PMIs

Looking ahead to next week, the Pound to US Dollar exchange rate could face further volatility with the release of the finalised UK manufacturing and services PMIs.

Given the increase seen in the flash PMI readings the Pound could benefit from fresh signs of growing economic momentum.

If the services PMI remains firmly in expansion territory this may offer particular encouragement to GBP exchange rates, given that the sector remains the primary growth engine of the UK economy.

Unless the PMIs see a downward revision from their initial forecasts the downside potential of the Pound to US Dollar exchange rate is likely to diminish.

Louisa Heath

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