Pound US Dollar Exchange Rate Dented by Slowing UK GDP Growth

Pound US Dollar (GBP/USD) Exchange Rate Dips as UK Economy Loses Momentum

The Pound US Dollar (GBP/USD) exchange rate is slipping this morning after tumbling yesterday.

GBP/USD fell to nearly two cents lower than it was at the start of yesterday’s session, sinking to its lowest levels since December 2020.

Soaring US inflation figures released yesterday, and UK GDP data published this morning showed growth slowed more than expected in the third quarter, sending the Pound sharply lower against the US Dollar.

The pairing has managed to limit losses at the time of writing to trade at $1.3405.

Pound (GBP) Pressured By Slowing UK Q3 GDP

The Pound (GBP) came under more selling pressure this morning after UK GDP figures for the third quarter slowed more-than-expected to 1.3%, missing forecasts of 1.5%.

Growth slowed from 5.5% in the second quarter, while the data also revealed a slowdown during the summer but a better-than-expected September.

The UK economy grew 0.6% in September but downwardly revised data for July from -0.1% to -0.2%, and 0.4% in August to 0.2%, dented the overall reading, and suggests the UK economic recovery could be running out of momentum.

Figures show the UK economy is 0.6% smaller than it was pre-pandemic in February 2020, and 2.1% smaller than the last quarter of 2019.

The service sector drove the growth in the third quarter as it makes up around 80% of the UK economy, with the sector growing by 1.6%. Meanwhile, production increased by 0.8%, manufacturing contracted by -0.3%, and construction dipped -1.5%.

The ONS chief economist, Grant Fitzner, said:

“Growth picked up in September and the UK economy is now only slightly below pre-pandemic levels.

“This latest increase was led by the health sector, boosted by more visits to GP surgeries in England. Lawyers also had a busy month as house buyers rushed to complete purchases before the end of the stamp duty holiday. However, these were partially offset by falls in both the manufacture and sale of cars.

“Notably, business investment remained well down on pre-pandemic levels in the three months to September. Meanwhile the trade deficit widened as goods exports to non-EU countries fell and imports – particularly of fuel – from non-EU countries increased.”

However, against the backdrop of supply chain disruption, staff and material shortages, and rising inflationary pressure, fears the UK economy may lose more momentum over the coming months has dented the Pound.

US Dollar (USD) Soars as US Inflation Hits 30-Year High

The US Dollar (USD) continues to strengthen on Thursday after surging following yesterday’s soaring inflation data that rose to a three-decade high.

Headline US inflation jumped more than expected to 6.2% in October, above forecasts of 5.8%, and much higher than September’s 5.4%.

The higher-than-expected inflation reading soured market sentiment and pushed US Treasury yields higher, which in turn increased demand for the safe-haven ‘Greenback’.

As the US Federal Reserve continues to maintain its policy stance that high inflation is temporary, jitters grow over the risk of inflationary pressure.

At the same time, some investors saw the data as increasing the likelihood of the Fed raising interest rates sooner, further bolstering the US Dollar.

USD exchange rates also received support from initial jobless claims falling to 267,000, their lowest levels since the pandemic hit in March 2020.

Pound US Dollar Forecast: GBP/USD to Extend Losses?

The Pound US Dollar exchange rate may limit its losses today on thin trading due to the US national Veterans Day holiday.

Amid souring market sentiment and US Dollar strength, the Pound may find support against other currencies at the end of this week’s session.

Ongoing talks over the Northern Ireland protocol still threaten to trigger a UK-EU trade dispute, potentially pushing Sterling lower at the end of the week.

US data released tomorrow may provide modest support to USD exchange rates.

Forecasts point to JOLTs job openings in September falling slightly to 10.3 million, from 10.439 million in August, potentially easing some concerns over staff shortages in the US.

Meanwhile, an increase in the Michigan consumer sentiment index may suggest the US economy is strengthening.

Andrew Roberts

Contact Andrew Roberts