Pound US Dollar (GBP/USD) Exchange Rate Slips after US GDP Beats Forecasts
(Updated 15:45, 26/1/23) The Pound US Dollar (GBP/USD) exchange rate continued to lose ground today after US GDP data beat forecasts, thereby supporting the ‘Greenback’.
The advance release for fourth-quarter GDP growth in the US printed at 2.9%, a slowdown from the previous quarter’s 3.2% growth but above expectations of 2.6%. But while the headline figure exceeded expectations, the data suggested underlying weakness in the US economy.
Andrew Hunter, Senior US Economist at Capital Economics, explains:
‘The 2.9% annualised rise in fourth-quarter GDP was a little stronger than we had expected, but the mix of growth was discouraging, and the monthly data suggest the economy lost momentum as the fourth quarter went on. We still expect the lagged impact of the surge in interest rates to push the economy into a mild recession in the first half of this year.’
Nevertheless, the data has given the US Dollar (USD) a lift. There are hopes that the Federal Reserve may achieve a ‘soft landing’, bringing inflation down and slowing the economy without causing too much lasting damage. In addition, a stronger reading may allow the Fed to raise interest rates even higher, and the slight uptick in rate hike bets is lending USD some support.
However, USD’s gains seem limited. The data has also cheered markets, with the risk-on mood dampening the appeal of the safe-haven ‘Greenback’.
Meanwhile, the Pound (GBP) has been struggling against many of its peers today. The Confederation of British Industry’s (CBI) latest distributive trades survey showed a larger-than-forecast fall in UK retail sales, which is adding to worries about the UK economy.
At the time of writing, GBP/USD is trading at $1.2362, having dropped 0.4% since today’s opening levels.
Original article continues below:
Pound US Dollar (GBP/USD) Exchange Rate Falls on Downbeat UK Economic News
The Pound US Dollar (GBP/USD) exchange rate wavered lower this morning as UK economic woes and rising US Treasury yields weighed on the currency pairing. However, a risk-on mood seems to be limiting losses.
At the time of writing, GBP/USD is trading at $1.2382, down more than 0.2% from today’s opening levels.
Pound (GBP) Muted amid Economic Angst
The Pound (GBP) is on the back foot this morning as worries about the UK economy once again put pressure on Sterling.
Earlier this morning, Andy Haldane, former Chief Economist for the Bank of England (BoE), warned that there was ‘more pain to come’ as mortgage costs rise and real wages continue to fall.
Speaking on BBC radio 4’s Today programme, Haldane said:
‘The terrible double whammy of first Covid and then the cost of living crisis has and is causing huge amounts of financial stress for many businesses, many households and of course many charities.
‘We’ve had a lost decade and a half in terms of pay rises in inflation-adjusted terms. Last year we saw real pay fall and we’ll most likely see the same happen again and that is putting acute financial stress and indeed mental stress on a great many households, that’s one consequence of the absence of growth, or certainly anaemic growth that we’ve seen.’
Haldane’s comments highlight one of the key challenges facing the UK economy. As households see their real incomes fall, they cut back on spending. This in turn weakens growth in the rest of the UK economy.
US Dollar (USD) Ticks Higher in Tandem with Treasury Yields
Meanwhile, the US Dollar (USD) is finding success this morning as an uptick in US Treasury yields lifts the ‘Greenback’.
The safe-haven currency’s gains seem somewhat limited, however, amid a risk-on market mood. Upbeat quarterly results from many European companies have sparked an improvement in market sentiment, which in turn is softening the appeal of the safer Dollar.
In addition, USD investors may be hesitant to place more aggressive bets ahead of key US data this afternoon.
GBP/USD Exchange Rate Forecast: US GDP Data to Dent the Dollar?
Later this morning the Confederation of British Industry’s (CBI) distributive trades survey for January is due out. Economists expect the survey – which monitors retail sales – to show a steep decline from 11 to -5 this month as consumers cut back on spending.
If the CBI sales data prints as forecast, it could add to fears about the UK economy. Such a result may put downward pressure on the Pound.
GBP/USD could see fresh movement in the afternoon amid a trio of US data releases, the most important of which is the US GDP growth rate.
Forecasts see US GDP slowing in the fourth quarter of 2022 from 3.2% to 2.6%. Such a result could indicate that higher interest rates from the Federal Reserve are succeeding in slowing the economy, but that GDP continues to expand, thereby raising hopes of a ‘soft landing’. This in turn could cheer global markets and dent the safer US Dollar.
However, stronger GDP may also give the Fed more room to raise rates, which could worry global investors and boost USD.
Either way, GBP/USD may experience some volatility.