Pound US Dollar (GBP/USD) Exchange Rate Wavers on Mixed US Data
(Updated 16:20, 27/10/22) The Pound US Dollar (GBP/USD) exchange rate wavered lower today as markets reacted to mixed US data.
The advance GDP growth rate for the US exceeded expectations, showing a 2.6% expansion in the third quarter. This represents a strong rebound from the back-to-back contractions in the first two quarters of 2022.
Meanwhile, durable goods orders printed at 0.4%. Although this was below the forecast 0.6%, the previous month’s figures were upwardly revised from -0.2% to 0.2%.
On the face of it, these were strong data releases. However, the GDP report revealed that domestic demand was at a two-year low and residential investment fell for the sixth consecutive quarter.
Sal Guatieri, a senior economist at BMO Capital Markets, commented:
‘Despite the shiny headline number, a look under the hood shows a much grimmer picture of the U.S. economy, one that is clearly losing steam… With the full effect of past and future Fed rate hikes still to be felt, the economy appears poised for a modest downturn in the first half of next year.’
Meanwhile, the GDP price index printed below expectations, slowing from 9.1% in Q2 to 4.1% in Q3. This huge drop in inflationary pressures puts less onus on the Federal Reserve to hike rates, thereby denting the US Dollar (USD).
At the same time, the Pound (GBP) lost its shine as Rishi Sunak’s honeymoon period with markets began to wear off.
The new UK Prime Minister faced criticism for his reappointment of Suella Braverman as Home Secretary, who was sacked by former PM Liz Truss just six days earlier. Allegations swirled, with one Tory MP saying that Braverman broke the ministerial code multiple times by leaking sensitive information.
After months of political turbulence, signs of a possible new scandal weighed on GBP.
Original article continues below:
Pound US Dollar (GBP/USD) Exchange Rate Rally Fizzles Out as Markets Await Key Data
The Pound US Dollar (GBP/USD) exchange rate edged lower this morning as the rally in the Pound (GBP) began to lose steam.
At the time of writing, GBP/USD was trading at around $1.1591. This is around 0.4% lower than the six-week high hit overnight, but still a huge 2.5% up since trade opened on Monday.
Pound (GBP) Eases Off Recent Highs as Tailwinds Fade
Pound Sterling ticked lower as today’s European session began. After making impressive gains following Rishi Sunak’s appointment as UK Prime Minister, it seems that GBP is taking a breather.
Markets are optimistic that Sunak can get a grip on the public finances and restore stability and credibility to the ruling Conservative Party, which has been marred by scandal, infighting, and unorthodox fiscal policy decisions over the last few months.
While renewed confidence in the UK government has seen Sterling soar this week, the Pound seems to have hit a ceiling.
As PM, Sunak faces a profound economic challenge. The UK may have already entered a recession, while high inflation and interest rates are squeezing real incomes.
With the afterglow of Sunak’s appointment as PM beginning to wear off, and the economic reality taking the forefront again, GBP exchange rates retreated a little this morning.
US Dollar (USD) Snaps Losing Streak as Treasury Yields Rise
Meanwhile, the US Dollar (USD) has snapped its two-day losing streak and is trying to push higher ahead of two key US data releases.
The ‘Greenback’ has found itself under significant pressure this week. A bullish run in global markets has sapped the safe-haven currency’s appeal. Additionally, traders have also been scaling back their bets for more aggressive interest rate rises from the Federal Reserve.
US Treasury yields – often a sign of rate rise expectations – have been declining since Friday. However, this morning they are ticking up once again, giving USD a much-needed boost.
So far the US Dollar’s gains are limited, but it has managed to recoup some losses against the Pound.
GBP/USD Exchange Rate Forecast: Strong US Data to see USD Soar?
Looking ahead, markets expect strong results from the latest US data. Durable goods orders are forecast to have recovered by 0.6% last month after a 0.2% decline in August. Meanwhile, economists expect the advance reading of the third-quarter GDP growth rate to show that the US economy returned to expansion from July to September. The forecast growth rate is 2.4%, following contractions of 1.6% and 0.6% in the first and second quarters, respectively.
If these two important data releases reveal ongoing strength in the US economy, markets may once again begin betting on more aggressive Fed interest rate rises. As a result, we could see USD regain ground.
As for the Pound, the Confederation of British Industry’s (CBI) distributive trades data could create headwinds. Markets predict that the CBI report will show another slump in retail sales, raising further concerns about the UK economy.