Pound US Dollar (GBP/USD) Exchange Rate Enjoys Unexpected Growth in UK Economy
The Pound US Dollar (GBP/USD) exchange rate continues to trade at a near one-month high this morning after the UK’s latest GDP data exceeded expectations.
At the time of writing, GBP/USD is trading at around $1.2239, up around 0.2% since today’s opening levels and just shy of a one-month high to $1.2249.
Pound (GBP) Stays Strong after Positive GDP
The Pound (GBP) is clinging on to its recent gains today after the UK economy unexpectedly grew in November.
The latest GDP report showed 0.1% growth, rather than the forecast 0.2% contraction, raising hopes that the UK economy may be more resilient than initially feared.
GDP grew 0.1% in November with
▪️ services up 0.2%
▪️ manufacturing down 0.5%
▪️ construction flat (0.0%)➡️ https://t.co/TbV9f82F6z pic.twitter.com/fqg8kNF4c6
— Office for National Statistics (ONS) (@ONS) January 13, 2023
The National Institute of Economic and Social Research (NIESR) has reviewed the data, and it says that while GDP may have contracted in December, it seems the UK may have escaped recession at the end of 2022.
However, headwinds certainly remain. The NIESR believes that consumers may have enjoyed ‘one last hurrah’ during the holiday season, and that shoppers will now tighten their belts as the cost-of-living crisis continues to erode purchasing power.
Nevertheless, the surprisingly positive GDP report today seems to be lending the Pound some support, allowing it to stay strong against the US Dollar (USD).
US Dollar (USD) Remains Muted following Yesterday’s CPI
Turning to USD, the ‘Greenback’ is still under selling pressure following yesterday’s CPI release.
US inflation cooled from 7.1% to 6.5% last month – its lowest level since October 2021 – which saw markets scale back bets for more aggressive Federal Reserve interest rate rises.
There's a clear trend down in inflation. The big question now is how much further it will fall in the coming months. Enough to put the Federal Reserve on pause?
December annual inflation of +6.5% is the lowest since October 2021. pic.twitter.com/ECk4HpFf1k
— Heather Long (@byHeatherLong) January 12, 2023
This has also helped contribute to a fairly upbeat market mood, as lower interest rates from the Fed will be better for the global economy, adding to the pressure on the safe-haven US Dollar.
GBP/USD Exchange Rate Forecast: Consumer Sentiment to Help US Dollar?
Looking ahead, the University of Michigan consumer sentiment indicator for January could give the US Dollar a boost later today. Forecasters expect the score to have improved for the second consecutive month to hit its highest level since April 2022. If the data prints true, USD could firm.
In the meantime, risk appetite could prompt movement in the Pound US Dollar pairing, with an upbeat market mood likely to support the riskier UK currency and dent the safe-haven ‘Greenback’.
GBP investors may also be watching the UK’s domestic headlines for trading cues. Markets continue to digest the latest GDP data, and analysts are offering their views and forecasts. Any hopes of a more resilient UK economy could be challenged by worries about how intensifying strike action might dent the country through early 2023.