Pound US Dollar (GBP/USD) Exchange Rate Strengthens in Face of Mixed GDP Growth Data
The Pound US Dollar (GBP/USD) exchange rate bolsters despite the UK economy contracting for the second consecutive month.
At time of writing, the GBP/USD exchange rate is around $1.1755, a 0.50% jump from this morning’s opening levels.
Pound (GBP) Defiant of Looming Recessionary Pressures
The Pound (GBP) is finding relative strength against some of its major peers this morning despite GDP contracting worse than expected MoM in June. However, despite still declining, a smaller-than-expected drop in quarterly GDP growth lent some modest support to Sterling.
The UK economy contracted for the second consecutive month as expected. More concerning is that whilst the UK and EU economies showed growth, the UK continues to slide. The monthly figures for September showed a 0.6% fall with the Office for National Statistics (ONS) saying that the Queen’s funeral impacted the figures. Expectations of a 0.5% decline in Q3 were met with a 0.2% fall, but on an annualised basis, the UK economy grew 2.4% versus 2.1%.
Ahead of the autumn statement next week, the concerning news of the UK halfway into recession could weigh heavy. Chancellor Jeremy Hunt warns of tough times ahead, blaming the Ukraine invasion and Russia’s ‘weaponization’ of gas supplies. Hunt added:
‘I am under no illusion that there is a tough road ahead – one which will require extremely difficult decisions to restore confidence and economic stability. But to achieve long-term, sustainable growth, we need to grip inflation, balance the books and get debt falling. There is no other way.’
The drop in GDP has been mainly driven by a declining UK manufacturing sector. With a notable drop off across most industries, the service sector also fell flat, along with retail.
US Dollar (USD) Muted amid Softening Inflation
Meanwhile, the US Dollar is struggling for demand this morning in the wake of lower-than-expected inflation. An upbeat market mood is stemming risk flows, coupled with China’s relaxing of strict Covid restrictions.
Consumer Price Index (CPI) for the US fell substantially to 7.7% YoY in October, compared to 8.2% in September. With expectations of falling to 8%, a softer-than-expected inflation reading tempers future rate hike bets. Predictions of a 50bps rate hike leapt above 80% from 50% before the CPI reading.
A fall in inflation could indicate a final slowing of price pressures, which could see an improvement in global market sentiment. Which in turn, could see the US Dollar slide. Paul Dales, Chief Economist at Capital Economics, said:
‘The US and the UK have a similar inflation problem. So the news (yesterday) that US inflation pressures appear to be easing has boosted hopes that UK inflation pressures will ease too.’
Pound US Dollar Exchange Rate Forecast: Autumn Statement to Restore Sterling Confidence?
Looking ahead to next week’s session, the Pound US Dollar exchange rate could see fluctuations with the release of the highly-anticipated autumn statement. Chancellor Jeremy Hunt looks to repair the damage caused by the previous Chancellor and intends to ‘take difficult decisions’ to bring inflation down.
Meanwhile, the US Dollar could see further movement as the midterm election results come to a conclusion. With both the Senate and the House still in contention, USD investors are expecting a political gridlock if Republicans take the House.