GBP/USD Exchange Rate Ticks Higher in Spite of UK’s Slow Economic Growth
The Pound US Dollar (GBP/USD) exchange rate is firming this morning despite the UK economy showing slower-than-expected growth during the third quarter’s final GDP print.
At the time of writing, the GBP/USD exchange rate is trading at around $1.3305 up roughly 0.3% from today’s opening levels.
Pound (GBP) Edges Higher Despite Q3 GDP Printing Lower-Than-Expected
The Pound (GBP) is trending higher against the US Dollar (USD) at the beginning of today’s session despite slower-than-expected growth between July and September.
UK GDP slowed to 1.1% during the third quarter, down from previous estimates of a 1.3% expansion, suggesting that the UK economy was weakened even before the new variant of coronavirus, Omicron, swept through the country.
These disappointing figures show a significant slowdown from the second quarter’s downwardly revised 5.4% growth.
The most significant output was provided by the hospitality, arts, entertainment, and recreation sectors in response to the easing of restrictions during this period.
The largest contribution to expenditure was household consumption which increased by an upwardly revised 2.7%.
However, inventories dropped, most likely impacted by the supply chain issues recently experienced, and net trade provided a negative contribution.
Currently, the UK economy is below its pre-pandemic level of Q3 in 2019.
ONS director of economic statistics, Darren Morgan, said:
‘Our revised figures show UK GDP recovered a little slower in the third quarter, with much weaker performances from health and hairdressers across the quarter, and the energy sector contracting more in September, than we previously estimated.
‘However, stronger data for 2020 means the economy was closer to pre-pandemic levels in the third quarter.’
US Dollar (USD) Weighed On by Risk-On Mood
Meanwhile, the US Dollar (USD) is under pressure this morning as investors favour riskier assets which is denting the safe haven currency.
Although markets are typically quiet surrounding Christmas, this year the Omicron situation is causing an unseasonably volatile mood.
Analysts at ING said:
‘This year some seasonal tendencies will be mixed with the Omicron variant threatening to force new restrictions and markets still processing a week full of key central bank decisions.’
Fluctuating market sentiment as governments around the world continue to change restrictions and policies is infusing volatility into USD exchange rates.
However, US President, Joe Biden, has announced that the US will not be going into further lockdowns over Christmas despite rising case numbers.
A senior administration official said:
‘We have the tools to get through this wave. We’re prepared for what we think will be an increase in unvaccinated hospitalisations in the coming months.
‘We should take omicron seriously but this is a cause for concern, not a cause for panic.’
GBP/USD Exchange Rate Forecast: Will US Final Q3 GDP Print Influence USD?
Looking ahead, the Pound US Dollar (GBP/USD) exchange rate may be influenced by US data scheduled to be released throughout the week whilst GBP is likely to remain vulnerable to the Omicron situation.
Later today the third quarter GDP for the US is due to be released which may influence the ‘Greenback’. USD is forecast to see growth of 2.1%, down from the previous quarter’s growth of 6.7%.
USD may also be influenced by the print of December’s consumer confidence which is expected to print at 110.8, marginally higher than November’s 109.5.
On the other hand, GBP is likely to be impacted by the evolving Omicron situation. The UK government’s potential implementation of ‘Plan C’ or a ‘circuit breaker’ lockdown is likely to hamper Sterling’s appeal.