Pound US Dollar (GBP/USD) exchange rate subdued as UK borrowing costs fall
The Pound US Dollar (GBP/USD) exchange rate is trading sideways this morning, despite reports that UK borrowing halved in December.
At the time of writing the GBP/USD exchange rate is trading at around $1.2720, virtually unchanged from this morning’s opening rate.
Pound (GBP) rangebound amid lower UK borrowing costs
The Pound (GBP) is trading in a narrow range this morning, following reports that UK borrowing costs fell by half at the end of last year.
The Office for National Statistics (ONS) reported that UK borrowing levels fell to £7.8bn in December, far lower than an expected borrowing cost of almost £14bn.
The UK’s latest borrowing figure is the lowest it’s been since before the Covid-19 pandemic, and has served to revive hope among GBP investors about the health of the UK economy.
Ruth Gregory, Deputy Chief UK Economist at Capital Economics, commented:
‘After nine months of the 2023/24 fiscal year, borrowing is on track to undershoot the OBR’s full-year borrowing forecast of £123.9bn by £5.0bn.-
What’s more, with market interest rate expectations and long-dated gilt yields having fallen since November, we suspect the OBR will revise down its borrowing forecast significantly from 2025/26.’
The Pound initially firmed following the publication, with the prospect of lower borrowing costs and potential tax cuts boosting optimism around the UK economy.
However, Sterling is struggling to hold on to its earlier gains today, and continues to trade sideways.
US Dollar (USD) quiet amid lull in data
The US Dollar (USD) is treading water this morning, as a lack of market-moving data leaves the ‘Greenback’ trading without a clear direction.
As geopolitical tensions in the Middle East and the Red Sea continue to rise, the safe-haven US Dollar could attract bids should markets take a downbeat turn.
However, with markets currently trading mixed, the US Dollar is struggling to find a clear trajectory, and may fluctuate throughout the rest of the session.
GBP/USD exchange rate forecast: US GDP to bolster pairing?
Looking ahead, the Pound US Dollar exchange rate’s primary driver of movement will likely be the US GDP growth rate for Q4, which will be published on Thursday.
With US GDP expected to have dropped from 4.9% to 2% in the fourth quarter of 2023, this may weigh on US Dollar exchange rates, as signs of a slowing economy may stoke speculation that the Federal Reserve will start to consider cutting interest rates.
Before that, on Wednesday both the UK and US PMIs for January are due out.
With the all-important services PMIs expected to report growing levels for both the UK and the US, both currencies could enjoy support, which may see GBP/USD waver.