GBP/USD Exchange Rate Extends Rally as US GDP Misses
(Updated 14:00, 29/7/21) The Pound US Dollar (GBP/USD) exchange rate looks to be ready to test a key barrier of resistance this afternoon, after US GDP printed below expectations in the second quarter.
The US Dollar is on the defensive after the preliminary estimate from the US Bureau of Economic Analysis, suggests the US economy grew by an annualised 6.5% in Q2, against forecasts for a more impressive 8.5% expansion.
Today’s underwhelming US GDP figures will reaffirm the Federal Reserve’s current stance that the US economy is ‘still some ways off’ the point at which the Fed can start to tighten its monetary policy, much to the dismay of USD investors.
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Pound US Dollar (GBP/USD) Exchange Rate Consolidates Gains above $1.39
The Pound US Dollar (GBP/USD) exchange rate is currently trading at its best levels since late June, following the Federal Reserve’s latest policy meeting.
At the time of writing the GBP/USD exchange rate is trading at around $1.3964, up roughly 0.4% from this morning’s opening rate.
US Dollar (USD) Licks its Wounds Following Dovish Fed Meeting
The US Dollar (USD) remains on the defensive this morning, as the US currency continues to reel from the Federal Reserve’s latest policy statement.
The Fed opted to leave interest rates on hold following its July policy meeting. While this was widely expected, the Fed’s dovish forward guidance helped to propel the Pound US Dollar exchange rate above $1.39 on Wednesday evening.
USD investors were particularly dismayed by comments from Fed Chair Jerome Powell, who suggested that the Fed is still ‘some way away’ from tightening its monetary policy as the US economy has more ‘ground to cover’.
‘I’d say we have some ground to cover on the labor market side. I think we’re some way away from having had substantial further progress toward the maximum employment goal.’
Powell’s comments came as a disappointment to USD investors, some of whom had been hoping that the Fed may have opened discussions regarding the tapering of its bond purchases this month.
Instead, it looks as though these tapering discussions have been pushed back to next month’s annual Jackson Hole Symposium.
Pound (GBP) Buoyed by Brexit Optimism
At the same time, the Pound is trending higher this morning as Sterling sentiment is bolstered by renewed Brexit optimism.
This comes after the EU announced earlier this week that it would be suspending legal action against the UK over its violation of the Northern Ireland protocol.
It’s hoped that the move will help to de-escalate tensions between the two sides, which have flared in recent weeks.
GBP investors are hopeful that the olive branch will lead to a longer-lasting solution being found, and that this can pave the way for more in-depth talks regarding a services trade deal.
Pound US Dollar Forecast: Robust US GDP to Extend the Downtrend in USD?
Looking ahead, this afternoon’s US GDP release will likely act as a key catalyst of movement in the Pound US Dollar exchange rate later this afternoon.
Economists are predicting the US economic recovery will have continued to gather pace in the second quarter, with growth forecast to accelerate to 8.5% in the three months to June.
However rather than bolster the US Dollar, the upbeat US GDP release could dampen demand for the safe-haven currency, with a strong expansion in the world’s largest economy likely to boost global growth expectations.
Meanwhile, in the absence of any notable GBP economic data, UK coronavirus developments are likely to dictate movement in the Pound, potentially leading to some weakness in the GBP/USD exchange rate as new cases begin to climb again.