Pound US Dollar Exchange Rate Stumbles In Spite of Abysmal US Growth Figures
(Updated 24/4/22 14:00 BST) The Pound US Dollar (GBP/USD) exchange rate struck a fresh 22-month low this afternoon, in spite of the latest US GDP figures printing well below expectations.
Preliminary figures report the US economy unexpectedly contracted by 1.4% in the first quarter of 2022. This was down from a 6.9% expansion in Q4 2021 and significantly short of forecasts the US economy would grow 1.1%.
The shock contraction of growth was attributed to low consumer confidence, amidst surging inflation, Omicron and the war in Ukraine, although the US Dollar has largely maintained its bullish momentum in spite of the alarming figures.
Meanwhile, the Pound is on the back foot this afternoon amid concern over the UK economy as well as fading Bank of England (BoE) rate hike bets.
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GBP/USD Exchange Rate Muted Following Sharp Surge in US Dollar
The Pound US Dollar (GBP/USD) exchange rate is trading in a narrow range so far this morning as the pairing takes a breather after dropping three cents since the start of the week.
At the time of writing the GBP/USD exchange rate is trading at around $1.2546, virtually unchanged from this morning’s opening levels.
US Dollar (USD) Takes a Breather amid Considerable USD Demand
After rocketing higher through the first half of the week, the US Dollar (USD) appears to be catching its breath this morning.
USD exchange rates have soared on the back of risk-off flows and expectations for several aggressive interest rates hikes from the Federal Reserve over the next few months.
This morning’s lull comes amid a modest uptick in risk appetite as well as suggestions the Dollar Index (DXY) – which measures the US Dollar against a basket of currencies – could face some resistance at 104.
However, economists at ING suggest the conditions are right for the US Dollar to extend its bullish momentum for the foreseeable future.
‘Global events are conspiring to send the dollar a lot higher. The Fed looks set to embark on an aggressive tightening cycle this year to stamp out inflation. War in Europe and the risk of an abrupt cut-off in Russian gas are damaging European growth prospects and local currencies, while Asia is dealing with its own growth problems and the likes of both China and Japan are still in monetary easing mode.
‘It is hard to see this environment changing in the next six months, meaning that this Dollar boom looks set to continue.’
Pound (GBP) Muted as Markets Await BoE Bailey Speech
At the same time, the Pound (GBP) is stuck in a narrow range this morning as GBP investors await a speech from Bank of England (BoE) Governor Andrew Bailey.
In his last scheduled public appearance before the BoE’s May policy meeting, GBP investors will be looking to gauge whether Bailey might support several more interest rate hikes this year.
The BoE is widely expected to deliver its fourth consecutive interest rate hike following next week’s policy meeting. But there are significant doubts over whether the bank will pursue any more hikes over the summer.
If Bailey strikes a cautious tone this may signal to GBP investors that the BoE could pause its current tightening cycle and ensure the Pound remains offered.
Pound US Dollar Forecast: USD Rally to be Tempered by Slowdown in US GDP?
Looking ahead, the Pound US Dollar exchange rate could see a reprieve later this afternoon with the publication of the latest US GDP figures.
The preliminary estimate for the first quarter is forecast to report US growth slowed from 6.9% to 1.1%, although any resulting pullback in the US dollar is likely to be modest in scope.
Meanwhile, the absence of any notable UK data could leave the Pound vulnerable to further selling pressure, although phycological resistance could help prevent the GBP/USD exchange rate falling below $1.25 this week.