GBP/USD Exchange Rate Holds Ground amid Shock Contraction in US GDP
(Updated 14:40, 28/7/22) The Pound US Dollar (GBP/USD) exchange rate is trading sideways this afternoon, following the publication of the latest US GDP figures
The GBP/USD exchange rate had begun to drift lower in the middle of today’s European session, but was quick to regain its footing with the release of the US growth figures.
USD investors were shocked as the initial estimate for growth in the second quarter reported the US economy contracted 0.9% against forecasts for a 0.5% expansion. This plunges the US into a technical recession following the 1.6% contraction in the first quarter.
The US economy contracted in the first half of 2022
What hurt growth:
Big drop in inventories
Drop in biz investment
Drop in Real Estate spending
Drop in spending on goods (cars, furniture, etc)
Gov't spending down
What's doing well:
Consumer spending, esp. on services
— Heather Long (@byHeatherLong) July 28, 2022
So far the response by the US Dollar has been fairly muted, as the grim figures spark wider concerns about the global economy, underpinning demand for the safe-haven ‘Greenback’.
Original article continues below:
Pound US Dollar Exchange Rate Consolidates Post Fed Gains
The Pound US Dollar (GBP/USD) exchange rate is ticking higher this morning. The pairing consolidating its gains after surging over a cent on Wednesday in the wake of the Federal Reserve’s latest policy meeting.
At the time of writing the GBP/USD exchange rate is trading at around $1.2187. Up roughly 0.2% from this morning’s opening levels.
US Dollar (USD) Licks Wounds Following Fed Driven Selloff
The US Dollar (USD) remains on the back foot this morning. The currency licking its wounds after collapsing on Wednesday in response to the Fed’s latest policy meeting.
The Fed announced another 75bps increase in interest rates on Wednesday. The US central bank’s second three-quarter increase in as many months.
However the 75bps hike was priced in well ahead of yesterday’s announcement. The resulting plunge in the US Dollar was instead linked to some cautious messaging from Fed Chair Jerome Powell.
Chair Powell answers reporters’ questions at the FOMC press conference on July 27, 2022 pic.twitter.com/4B4vEqXSW5
— Federal Reserve (@federalreserve) July 27, 2022
Speaking at a press conference which followed the rate hike announcement. Powell suggested the Fed might need to slow the pace of future interest rate hikes.
‘While another unusually large increase could be appropriate at our next meeting that is a decision that will depend on the data we get between now and then.
‘As the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases while we assess how our cumulative policy adjustments are affecting the economy and inflation.’
USD investors swiftly began to scale back expectations for more oversized hikes from the Fed in the wake of Powell’s comments. Resulting in a sharp drop in the US Dollar.
Powell also struck a more cautious note regarding US economic growth. While he said he did not believe the US is facing a recession, he warned grow will need to slow if the bank is to tame inflation.
Pound (GBP) Gains Capped by General Strike Warning
The Pound (GBP) remains on a positive trajectory against the US Dollar this morning. However Sterling’s upside potentially appears limited amid fears of further industrial unrest in the UK.
The UK economy could see further disruption in the coming months as the ‘summer of discontent’ sees several industries set to strike over pay.
Mick Lynch, the chief of the Rail, Maritime and Transport (RMT) union has even warned he will campaign for the Trades Union Congress to call for a general strike by workers. If the government continues to threaten to curb industrial action.
Pound US Dollar Forecast: Rebound in US GDP to Revive USD Demand?
The publication of the latest US GDP figures may see the Pound US Dollar exchange rate reverse course later this afternoon.
The preliminary release is forecast to report a rebound in US economic growth in the second quarter. The US economy is predicted to have grown 0.5% in the three months to June. Rebounding from a 1.6% contraction at the start of the year.
Of course if US growth underperforms the US Dollar is likely to extend its losses.
Meanwhile, the UK’s latest consumer credit figures could act as a headwind for the Pound on Friday. As a rise in consumer debt may feed into concerns over the cost of living crisis.