Pound US Dollar (GBP/USD) Exchange Rate Plummets in Wake of US GDP
(Updated 10:40, 28/07/23) The Pound US Dollar (GBP/USD) exchange rate extended yesterday’s selloff overnight, plunging to a 17-day low, as markets bet on the possibility of more Federal Reserve interest rate hikes.
Today the GBP/USD exchange rate is attempting a recovery, but a lack of UK data is limiting the Pound’s (GBP) success. A risk-off mood is also providing the safe-haven US Dollar (USD) with support against the riskier UK currency.
Looking ahead, the core PCE price index – the Fed’s preferred gauge of inflation – could drive more volatility. Will a cooldown in underlying inflation once again dent Fed bets, thereby aiding GBP’s recovery?
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Pound US Dollar (GBP/USD) Exchange Rate Slumps as US GDP Unexpectedly Expands
(Updated 14:45, 27/07/23) The Pound US Dollar (GBP/USD) exchange rate came crashing down from an earlier eight-day high this afternoon after hotter-than-forecast US data revived Federal Reserve rate hike bets.
The GBP/USD exchange rate had initially been supported this morning, following the Fed’s decision last night. Markets believed yesterday’s interest rate rise could’ve been the Fed’s last, prompting a drop in the US Dollar (USD).
However, stronger-than-expected data this afternoon has revived the possibility of more Fed tightening.
Most notably, the second-quarter GDP growth rate for the US unexpectedly expanded. The American economy grew 2.4% from April to June, up from 2% the previous quarter and above forecasts of 1.8%.
Meanwhile, durable goods orders leapt from 2% to 4.7%, versus the forecast 1%, and initial jobless claims unexpectedly dropped.
The latest data points to a surprisingly resilient US economy, which may spur the Federal Reserve to continue tightening monetary policy.
At the time of writing, GBP/USD is trading at $1.2853, down over 1% from an earlier high of $1.2995.
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Pound US Dollar (GBP/USD) Exchange Rate Climbs amid Fed Policy Speculation
The Pound US Dollar (GBP/USD) exchange rate hit an eight-day high today after the Federal Reserve struck a dovish tone in the wake of its latest interest rate decision.
At the time of writing, GBP/USD is trading at around $1.2991, up 0.4% on the day.
US Dollar (USD) Downbeat following Fed’s Dovish Hike
The US Dollar (USD) is under pressure today as markets continue to digest last night’s policy announcement from the Fed.
While the US central bank raised interest rates by 25bps, subsequent comments from Fed Chair Jerome Powell led analysts to believe that this may have been the bank’s last hike.
Powell failed to commit to another rate rise – a climbdown from his previous position, when he said that most policymakers see two or more rate hikes by the end of the year.
His language also seemed to focus on holding rates at a restrictive level, rather than talking of more tightening. Although, he was at pains to point out the Fed could hike again if policymakers deemed it necessary.
As economists and investors listened to Powell’s press conference, a consensus emerged that the Fed is likely at the end of its tightening cycle. This saw USD exchange rates drop and continues to weigh on the ‘Greenback’ today.
Pound (GBP) Rises amid Risk-On Mood
Meanwhile, the Pound (GBP) is strengthening against the US Dollar today, as a cheery market mood supports the increasingly risk-sensitive UK currency over its safer American rival.
Global investors are upbeat following the Fed’s decision, as higher borrowing costs in the US have a detrimental impact on the world economy. With the Fed potentially done raising rates, the global growth outlook is a little brighter.
However, Sterling’s gains seem limited so far today as no UK data has yet been published. With new economic releases for both the UK and the US due out as the session unfolds, more movement may be ahead.
GBP/USD Exchange Rate Forecast: High-Impact Data to Drive Volatility?
Looking ahead, we could see more volatility in the Pound US Dollar pairing today as both currencies have data due out.
First up, we have the Confederation of British Industry’s (CBI) distributive trades survey for July. Forecasters expect the measure of retail sales to improve from -9 to -2. But, after two CBI data releases beat forecasts earlier in the week, there’s a chance today’s data could exceed expectations. Could a strong release boost Sterling?
Later in the afternoon, we have the first estimate for second-quarter GDP growth in the US. The American economy is set to slow from 2% to 1.8% growth. A larger-than-expected slowdown could weigh heavily on USD.
In addition, US durable goods orders are due out, with the figure set to ease from 1.7% to 1%, and the latest initial jobless claims report is set to tick higher.
Overall, signs of a cooling US economy could add to speculation that the Fed is done raising rates. However, if the data exceeds forecasts, we could see USD rally.