Pound US Dollar (GBP/USD) hold steady ahead of vital US data
The Pound US Dollar (GBP/USD) exchange rate is trapped in a narrow range this morning, with data in short supply until the latter part of today’s session.
At the time of writing the GBP/USD exchange rate is trading at around $1.2740, virtually unchanged from this morning’s opening rate.
Pound (GBP) rangebound amid data lull
The Pound (GBP) is flat this morning with notable UK data in short supply.
Sterling retreated overnight, after finding support in January’s better-than-forecast preliminary PMI reports. However, yesterday’s upbeat data appears to be keeping Sterling afloat as today’s session begins, cushioning GBP’s potential downside.
Reluctant investors now await further signs of UK resilience amid an improving Sterling sentiment, though today’s latest retail data is unlikely to provide the much-needed economic optimism required to boost GBP.
With the Confederation of British Industry’s (CBI) distributive trade balance forecast to report a ninth consecutive month of contraction later this morning, conditions within the retail sector appear continually bleak.
In recent days economists have reiterated that persistently high interest rates are still weighing heavily on the average UK consumer, leading to decreased spending and a progressively weakening retail sector.
Alex Kerr, economist at Capital Economics, said:
‘Looking ahead, some of the drag from higher interest rates on existing mortgage holders may result in a further modest decline in real consumer spending in the first quarter of 2024.’
Bleak retail data may serve to boost the likelihood of imminent Bank of England (BoE) interest rate cuts in the first half of the year, limiting Sterling’s upside as today’s session continues.
US Dollar (USD) muted ahead of GDP data
The US Dollar (USD) is quiet this morning as investors remain hesitant to place any aggressive bets on the ‘Greenback’ ahead of this afternoon’s highly impactful data releases.
Following yesterday’s strong PMI data, signs of continual economic expansion in the US have tempered markets expectations of a March interest rate cut.
Alongside hawkish commentary from Federal Reserve policymakers, shifting rate cut bets are serving to stymie USD volatility today.
Fed Loretta Mester commented earlier this week:
‘I think March is probably too early in my estimate for a rate decline because I think we need to see some more evidence.’
As such, investors may look to this afternoon’s hotly anticipated data releases for insight into the US central bank’s data driven approach towards monetary policy decisions in the coming months.
Pound US Dollar exchange rate forecast: US GDP to boost rate cut bets?
Looking ahead, the US Dollar may see a volatile afternoon of trade amid some impactful data releases. The core catalyst of movement is likely to be the latest US GDP data, which is forecast to report 2% economic growth in the fourth quarter of 2023, dropping significantly from the previous quarter’s significant expansion of 4.9%.
Sharp economic slowing may reinforce market expectations of a March rate cut, while also suggesting earlier and more aggressive cuts, as the Fed tries to reinject a sense of momentum into the US economy.
Economists also expect to see a significant slump in US durable goods orders throughout December this afternoon. Following the previous month’s unexpected 5.4% surge, new orders for manufactured durable goods in the United States are due to fall to 1.1%. Alongside cooling GDP data, a decline within US manufacturing may see USD sentiment turn sour.
Also due later today is the latest US employment data. A slight increase in both initial jobless claims and continuing jobless claims is likely to drive concerns of a loosening US labour market, thereby denting the ‘Greenback’.
Looking to the UK, the only notable data due for release today is the mildly impactful Confederation of British Industry’s (CBI) distributive trade data. Economists expect to see another negative reading, of -18 in January, likely to dent the Pound.