Pound US dollar (GBP/USD) exchange rate firms as US growth disappoints
(Updated 16:15, 25/04/22) The pound US dollar (GBP/USD) exchange rate traded in a wide range as the session progressed, ultimately strengthening off the back of a downbeat US GDP print.
After soaring against the US dollar (USD) this morning, the pound (GBP) has since levelled off, posting slightly more modest gains against the ‘greenback’ throughout the afternoon.
US growth dropped sharply in the first quarter, with estimated GDP at 1.6%, falling notably below forecasts of a 2.5% slump, and declining from a previous reading of 3.4%.
While economists had expected to see a less drastic slowdown through the start of the year, analysts suggested that the data could well be revised in the future, which served to cushion USD’s downside.
Robert Frick, Corporate Economist with Navy Federal Credit Union, said:
“We knew the economy was weaning itself off government support, we just didn’t figure that would cause GDP to drop this quickly. With government spending down, and consumer spending moderating as Covid-era supports disappear, GDP fell below all estimates. But consumers continue to spend at a healthy rate, especially as evidenced by big spending on imports, which drove down the topline GDP number.
First quarter GDP is often squirrelly and heavily revised—just look at last year’s—so all-in-all this shouldn’t be taken as a fundamental downshift in the economy.’
Meanwhile, initial jobless claims printed lower than expected, indicating that the US labour market continues to strengthen after concerns of cooling last year.
At the time of writing, GBP/USD is trading at $1.2492, down from $1.2512 this morning.
The focus moving forward will be the latest American PCE price index. As the Federal Reserve’s preferred measure of inflation, a stubborn reading could reinforce deferred Fed rate cut bets.
Original article continues below:
Pound US dollar (GBP/USD) firms ahead of American GDP
The pound US dollar (GBP/USD) exchange rate is firming this morning ahead of high impact American GDP data, due for release this afternoon.
At the time of writing the GBP/USD exchange rate is trading at around $1.2512, up approximately 0.4% from this morning’s opening rate.
US dollar (USD) slumps ahead of GDP release
The US dollar (USD) is facing headwinds this morning as investors appear reluctant to place any aggressive bets on the ‘greenback’ ahead of the latest GDP and employment data.
Markets forecast a slowdown in US economic growth, which could subsequently weigh heavily on USD exchange rates as the session progresses. Signs of economic cooling may prompt markets to rethink their currently deferred interest rate cut speculations, which in turn could undermine the ‘greenback’.
Furthermore, ahead of the latest jobs data, concerns that persistently high Federal Reserve interest rates may be stifling economic momentum in the US seemingly dampens investor interest in USD this morning.
Quincy Krosby, Chief Global Strategist as LPL Financial, said:
‘If there’s any sense that companies have to start cutting back costs and that leads to labour market trouble, this is the path of a potential problem with rates this high.’
Pound (GBP) strengthens amid data lull
The pound (GBP) is gaining ground against its rivals this morning despite a lack of macroeconomic releases so far today.
A cautiously upbeat market mood seemingly boosts the increasingly risk-sensitive pound amid a data-light start to the session, with investors favouring riskier assets over more secure investment options.
As concerns of supply chain shocks continue to rattle global markets amid ongoing conflict in the Middle East, GBP may continue to benefit from upbeat trading conditions ahead of UK figures, due later today.
Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd, noted:
‘Tensions between Iran and Israel have eased, but Israeli attacks on Gaza are expected to worsen, and the risk of conflicts spreading to neighbouring countries is underpinning oil prices.’
Pound US dollar exchange rate forecast: US GDP in focus
Looking ahead, the latest US GDP release is due for release this afternoon. Analysts expect the data to report 2.5% growth in the US economy in the first quarter of 2024, slowing from a 3.4% expansion in the fourth quarter of 2023.
Decelerating economic growth could weigh on USD exchange rates as investors mull over the strength of the American economy.
However, some economists expect that American GDP is likely to surprise to the upside, beating forecasts and showing stronger-than-expected growth. Should this occur, USD may strengthen against its major rivals.
Also due out in the US are the latest initial jobless claims. Economists forecast a slight increase to 215,000 unemployed American citizens claiming unemployment benefits for the week ending April 20. Should the data print as forecast, signs of loosening employment could see the US labour sector face further scrutiny, undermining the US dollar.
For GBP, a lack of high impact releases throughout Thursday’s session could see investors looking towards the CBI’s latest distributive trades data. A forecast slump could see Sterling falter against its rivals.
Otherwise, the pound may be left vulnerable to market volatility. A cheery market sentiment will likely lift the increasingly risk-sensitive Pound against its safe-haven peers, while downbeat trading conditions could see USD take precedent.