Pound US Dollar (GBP/USD) subdued following bleak UK GDP data
The Pound US Dollar (GBP/USD) exchange rate is trapped in a narrow range this morning amid UK economic pessimism and cheery trading conditions.
At the time of writing the GBP/USD exchange rate is trading at around $1.2556, virtually unchanged from this morning’s opening rate.
Pound (GBP) slumps amid disappointing GDP data
The Pound (GBP) is facing headwinds this morning following the UK’s latest GDP report.
Economic growth came in at -0.3% during the fourth quarter of 2023, shrinking more than economists’ expectations of a 0.1% contraction. The data thereby confirms that UK fell into a technical recession last year, following two consecutive quarters of negative growth.
James Smith, research director at the Resolution Foundation, explains:
‘Britain has fallen into recession, and a far deeper living standards downturn. Even this weak data is flattered by a rising population. The big picture is that Britain remains a stagnation nation, and that there are precious few signs of a recovery that will get the economy out of it.
The Bank of England (BoE) may face renewed pressures continues to rethink its cautious stance towards UK monetary policy amid speculations that continually high interest rates are weighing heavy on UK economic activity.
In turn, GBP may struggle to attract investor support as the session continues.
US Dollar (USD) muted amid data lull
The safe-haven US Dollar (USD) is rangebound this morning as a spell of cheery trade stifles ‘Greenback’ movement.
Amid a lack of data, hawkish commentary from Federal Reserve policymakers serves to keep the ‘Greenback’ afloat today.
During a speech last night Vice Chair Michael Barr continued to push back against interest rate cuts in the first quarter, reinforcing market speculations that Fed rates will remain ‘higher for longer’.
‘My FOMC colleagues and I are confident we are on a path to two percent inflation, but we need to see continued good data before we can begin the process of reducing the federal funds rate.
We want to make sure that we don’t cut prematurely.’
However, the US Dollar will likely remain quiet as investors hold steady ahead of this afternoon’s impactful data releases.
Pound US Dollar exchange rate forecast: USD to struggle amid falling retail activity?
Looking ahead, US retail sales could dent the ‘Greenback’ this afternoon amid declining consumer activity. Economists expect to see negative growth in January’s retail sales, at -0.1%, down from 0.6% growth in the previous month. Decreased spending may serve to indicate that persistently high interest rates are stifling US spending, pushing the Fed to begin its loosening cycle.
Initial jobless claims for the week ending 10 February are also due out later today. A forecast increase in the number of US citizens signing up for unemployment benefits may reignite concerns of a loosening US labour market, further pressuring USD.
Looking to the UK, BoE policymaker Megan Greene is due to speak later in the session. Should the BoE dove advocate for looser monetary policy in the coming months, the Pound may falter amid increasing rate cut bets.