Pound US Dollar (GBP/USD) Exchange Rate Strengths despite Surprise UK GDP Fall
The Pound US Dollar (GBP/USD) exchange rate is strengthening this morning, as a risk-on market impulse supports Sterling.
At the time of writing, GBP/USD is trading at around US$1.2109, a rise of roughly 0.3% from the morning’s opening rates.
Pound (GBP) Capped by Worse-Than-Expected GDP Reading
The Pound (GBP) is trading narrowly this morning, after the final GDP reading for Q3 came in below initial expectations.
Printing at -0.3% quarter-on-quarter, down from -0.2%, and 1.9% year-on-year down from 2.4%, the data points to an earlier recession. While risk-on market impulses are serving to cushion Sterling, the bleak news is pushing further gains away.
Furthermore, the news sets the scene for a bleak 2023. John Leiper, Chief Investment Officer at Titan Asset Management explained this further, stating:
‘It is concerning, albeit not too surprising, to see household consumption and total business investment declined meaningfully as the economic environment continues to sour. This sets the scene for a dour 2023 and is consistent with our expectations for a recession next year.’
Adding further pressure to Sterling is further reports of the impact of Brexit on businesses across the UK. A survey from the British Chambers of Commerce (BCC) published this morning highlighted a bleak picture. 77% of UK firms state the deal hasn’t helped them to increase sales or expand, fuelling concerns for the economy.
US Dollar (USD) Sinks as Risk Sentiment Improves
The US Dollar (USD) is struggling for support this morning, as a risk-on impulse dominates the session.
On the back of yesterday’s surprising jump in US consumer confidence, the positive news for the consumption-based economy inspired optimism. With the health of the US economy seeming stable, investors are seeking more immediate returns on investment.
Further adding to the ‘Greenback’s woes are a fall in US treasury yields. These are indicative of investor rate hike bets, which appear to be falling in the face of a stable economy.
Pound US Dollar (GBP/USD) Exchange Rate Forecast: Core PCE Price Index to Weaken ‘Greenback’?
Looking ahead for the US Dollar, tomorrow’s release of the core PCE price index YoY data may be a key driver of movement.
As the Federal Reserve’s preferred gauge of inflation, the November data’s expected fall from 5% to 4.7% may weigh on USD. With the Fed remaining hawkish and rate hike expectations continuing, the fall in core inflation may pare these hopes back.
Due to the importance of this data, it may overshadow expected falls in personal income and personal spending. Both monthly readings are expected to fall, which may add pressure on top of cooling inflation.
For the Pound, data through to the week’s close remains thin on the ground. As such, investors may continue to mull the impact of the UK’s GDP data today, or focus on domestic headlines. Further news of continuing industrial action may weaken Sterling.