Pound US Dollar (GBP/USD) Exchange Rate Falls ahead of US PCE Index
The Pound US Dollar (GBP/USD) exchange rate dropped this morning amid an apparent burst of strength in the US Dollar (USD). Meanwhile, the Pound (GBP) is trading in a mixed range as UK data is thin on the ground.
At the time of writing, GBP/USD is trading at $1.2664, approximately 0.2% below opening levels.
US Dollar (USD) Supported by Higher-Than-Forecast GDP
The US Dollar appears to be enjoying retrospective tailwinds today following yesterday’s GDP release. US economic growth in the third quarter of 2023 exceeded forecasts of 5%, with the second estimate printing instead at 5.2%.
The news means the world’s largest economy is recovering from recent inflationary pressures faster than supposed. Richard Flax, chief investment officer at Moneyfarm, commented:
‘Despite the Federal Reserve having raised its benchmark interest rates 11 times since March 2022, the US economy remains resilient, even as inflation has begun to slow.’
Economists are now considering whether the Federal Reserve bank may hold off the interest rate cuts priced in by markets. This too may be lending USD some support as the perception of a dovish Fed had been weighing upon the currency.
Scott Acheychek, Chief Executive Officer of REX Shares, said of the situation:
‘I wouldn’t be surprised if we just stay in this higher for longer camp as the Fed just really wants to buy some time and see some form of a cooling economy.’
Pound (GBP) Faces Headwinds amid Economic Turmoil
Following a downwardly revised economic growth forecast from the Organisation for Economic Development (OECD) earlier in the week, the Pound had been able to maintain strength on expectations of a hawkish Bank of England.
Today, however, it seems downbeat forecasts may be beginning to take their toll on Sterling. As the BoE insists it will keep interest rates higher for longer, businesses are having to close as borrowing costs mount. For the first time since 2010, business closures have overtaken openings according to a report in the Financial Times.
Julie Palmer, partner at insolvency practitioners Begbies, observes:
‘The construction industry, which has long been a bellwether for the health of the economy, looks particularly vulnerable with over 70,000 firms now in significant financial distress.’
Also weighing upon GBP may be political turmoil resulting from Chancellor Jeremy Hunt’s Autumn Statement last week. Criticism from economists and opposition political parties remains strong, further enforcing the impression of volatility in the UK government.
Hunt was questioned yesterday by the Treasury Committee, wherein the Office for Budget Responsibility (OBR) said the Chancellor’s fiscal rules are loosest of any set Treasury has had since the OBR was set up.
GBP/USD Exchange Rate Forecast: US Payrolls Data to Spark Movement?
The Pound US Dollar exchange rate is likely to trade tomorrow on the latest employment data from the US.
The US economy is expected to have added 175k jobs in November – a 25k increase on October’s reading. If the release prints as expected, the ‘Greenback’ is likely to enjoy tailwinds.
Subsequently, the unemployment rate is forecast to have remained unchanged in November. If the data prints as expected or else falls from last month’s 3.9%, USD may attract further support.
A lack of UK data, meanwhile, leaves Sterling to trade on external factors. If forecasts of weak economic growth continue to dominate domestic headlines, the Pound could slump further against its peers.