Pound US Dollar (GBP/USD) Exchange Rate Slips amid Upbeat US Consumer Index
(Updated 16:10, 10/02/2023) The Pound US Dollar (GBP/USD) exchange rate has fallen this afternoon, following the release of the latest Michigan consumer sentiment index.
The index printed at 66.4, above forecasts of 65, and showed that US consumer sentiment is on the rise. With the US’ economy being consumption-based, the news cheered USD investors as they moved to support the ‘Greenback’.
However, while the index printed above expectations, analysis of the report painted a more muted picture of US consumer’s attitudes. Inflation remains a pressure on the ability of US consumers to spend, as does uncertainty over the economic outlook. As such, USD’s upside may have been limited.
Elsewhere, a shift in risk appetite is sending safe-haven flows towards the US Dollar, as investors move away from higher risk assets.
At the time of writing, GBP/USD is trading around US$1.2085, a decline of roughly 0.2% from the morning’s opening rates.
Original article continues below:
Pound US Dollar (GBP/USD) Exchange Rate Rangebound as UK Narrowly Swerves Recession
The Pound US Dollar (GBP/USD) exchange rate is narrowing this morning, as the latest GDP data shows that the UK narrowly avoided a recession.
At the time of writing, GBP/USD is trading around US$1.2116, showing little movement from the morning’s opening rates.
Pound (GBP) Muted as UK Narrowly Dodges Recession
The Pound (GBP) is largely directionless this morning, following the latest GDP data release. The fourth quarter’s data printed as forecast, showing that the UK economy had narrowly avoided a recession.
However, the overall picture is much less optimistic. GDP fell by 0.5% in December, after growing by 0.1% in November. Inflation, the rise in interest rates and industrial action are still creating conditions which are harming the UK economy.
Victoria Scholar, the Head of Investment at Interactive Investor, explored this further. She stated:
‘Although the UK managed to technically stave off a recession, the growth picture remains bleak weighed down by industrial action and sky-high inflation which is driving the cost-of-living crisis for consumers and a cost of doing business crisis too.’
Sterling may be being cushioned by modest rate hike hopes from GDP investors. With the economy avoiding a recession, there is theoretically room for further tightening from the Bank of England (BoE).
US Dollar (USD) Slips amid Quiet Trade
The US Dollar (USD) is on the back foot this morning, as a lack of key data leaves the currency vulnerable to market sentiment.
The Federal Reserve’s approach to interest rate hikes is still being picked over by investors. While the Fed overall remains hawkish, certain officials have indicated a need for data to be examined.
Because of this, the US Dollar may be seeing a quiet day of trade as investors anticipate the next inflation rate data.
Elsewhere, a mixed market mood is serving to keep the safe-haven ‘Greenback’ limited in appeal. If the mood begins to sour over the session, USD could strengthen.
Furthermore, the latest Michigan consumer sentiment index is scheduled to print this afternoon. With the US economy relying on consumption, the uptick may bring a boon to USD.
Pound US Dollar (GBP/USD) Exchange Rate Forecast: US Inflation to Weaken USD?
Beyond this afternoon’s consumer sentiment index for the US Dollar, the key driver of movement next week may be inflation data.
Both headline inflation and core inflation for January are forecast to tick down on Tuesday, which may weigh on the ‘Greenback’. In spite of a continuously hawkish Federal Reserve, markets are pricing in a slowdown in tightening. As such, if the inflation data ticks down as expected, rate hike bets may recede.
For the Pound, Tuesday sees the release of the latest unemployment data. December’s rate is forecast to stay the same, while wage growth is forecast to remain the same. If the unemployment rate remains the same, Sterling could rally as it may indicate a tight labour market.
Because of this, the Bank of England (BoE) may have room for further rate hikes, increasing investor bets.