Pound US Dollar (GBP/USD) zig-zags amid UK recession concerns
The Pound US Dollar (GBP/USD) exchange rate is volatile this morning as the UK’s latest GDP report did little to quell domestic recession fears.
At the time of writing the GBP/USD exchange rate is trading at around $1.2753, virtually unchanged from this morning’s opening rate.
Pound (GBP) rangebound despite GDP uptick
The Pound (GBP) is muted this morning despite the latest GDP data reporting a UK economic rebound.
GDP came in at 0.3% in November’s month-on-month reading, reaching a multi-month high, and surpassing October’s unexpected 0.3% contraction.
However, the report affirmed concerns that UK growth remains sluggish, fuelling worries of a UK recession in the final quarter of last year. Weak economic growth dampens investor interest in GBP this morning, driving speculations of Bank of England (BoE) interest rate cuts in the coming months.
Richard Carter, Head of Fixed Interest Research at Quilter Cheviot, observed that high interest rates appear to be stifling UK growth, furthering the case for looming BoE rate cuts.
Carter stated:
‘This morning’s figure shows just how precarious the situation is for the UK economy and piles yet more pressure onto the Bank of England to cut interest rates. The Bank has managed not to tip the UK into a recession to date, but it is looking increasingly likely that its luck may be coming to an end.’
US Dollar (USD) wavers amid cheery trade
The US Dollar (USD) is quiet this morning as an increasing appetite for risk leaves the safe-haven ‘Greenback’ subdued.
Stronger-than-expected Chinese data appears to have rocked global markets, leaving USD on the defensive in the wake of yesterday’s post inflation wins.
However, yesterday’s warmer-than-expected CPI data may serve to buoy USD as today’s session continues, amid pared back Federal Reserve rate cut bets.
Richard Flynn, managing director at Charles Schwab UK, observed that warming US inflation may serve to push back Fed rate cut bets, commenting:
‘It looks like the market may have jumped the gun in pencilling in as many as six Federal Reserve rate cuts in 2024.’
Amid signs of stubborn US inflation, USD investors may be forced to resize their rate cut bets, with cuts as soon as March looking increasingly unlikely.
Pound US Dollar exchange rate forecast: US PPI in focus
Looking ahead, the latest US producer price (PPI) index is due for release this afternoon. Forecast to edge slightly higher to 0.1% in December, signs of sticky US inflation may serve to boost the ‘Greenback’. Should the data print in line with forecasts, speculations of Fed rate cut bets in the first quarter may cool as US inflation remains stubborn.
A speech from Federal Reserve policymaker Neel Kashkari is also due this afternoon. Should the Fed hawk advocate a ‘higher for longer’ narrative regarding interest rates, USD may strengthen. Following this week’s hotter-than-expected CPI data, Kashkari may argue that it remains too soon to consider Fed rate cuts. As such hawkish commentary may see the US Dollar attract investor interest.
A lack of UK economic data until early next week may see the increasingly risk-sensitive Pound vulnerable to trading conditions. A spell of cheery trade may see the Pound US Dollar exchange rate strengthen. However, amid escalating conflict in the Middle East, a safe-haven dash could see USD firm.