Pound US dollar (GBP/USD) declines as US growth beats forecasts
Article updated 15:45, 25/7/2024
The pound US dollar (GBP/USD) exchange rate slumped on Thursday following a better-than-forecast GDP report in the US.
The US economy expanded by 2.8% in the second quarter, surpassing market projections of 2% and leaping higher from the first quarter’s sluggish 1.4% growth.
Olu Sonola, Head of Economic Research at Fitch Ratings, said:
‘This is a perfect report for the Fed. Growth during the first half of the year is not too hot, inflation continues to cool and the elusive soft-landing scenario looks within reach.’
This saw the US dollar (USD) edge higher against its peers. In addition to this, the latest initial jobless claims release printed lower than forecast, serving to gently quell concerns of a loosening US labour market.
However, a sharp 6.6% decline in US durable goods orders throughout June capped USD’s upside potential. After four consecutive monthly increases, a n unexpected slump in new orders last month served to reinforce concerns about the health of the US manufacturing sector.
Meanwhile, the pound (GBP) struggled to edge higher following a lacklustre batch of data from the Confederation of British Industry (CBI). The CBI’s industrial trends orders showed a notably larger-than-forecast decline, dipping well below forecasts of -19 to -32 in July.
Additionally, the CBI found that UK business optimism unexpectedly fell for the third quarter, slumping to -9, rather than rising to 15 as expected.
Ben Jones, Lead Economist at the CBI, said:
‘Sentiment among manufacturers has cooled a little over the past few months, as output growth consistently underperformed expectations. But the near-term outlook for the sector remains positive amid an ongoing recovery in the wider UK economy.’
Looking ahead, could a cooling core PCE price index in the US see the ‘greenback’ retreat from today’s highs?
At the time of writing, GBP/USD is trading at around $1.2882 down approximately 0.2% from today’s opening levels.
Original article continues below:
Pound US dollar (GBP/USD) exchange rate wobbles prior to US GDP data
The pound US dollar exchange rate is changeable this morning amid a data-light start to the European trading session.
At the time of writing the GBP/USD exchange rate is trading at around $1.2891, virtually unchanged from this morning’s opening rate.
US dollar (USD) subdued ahead of GDP release
The US dollar (USD) is facing headwinds this morning ahead of this afternoon’s market-moving data.
The primary focus for USD investors will likely be the latest domestic GDP release. Following a sluggish start to the year, in which the US economy expanded by 1.4%, North American GDP is due to have regained some momentum throughout the second quarter, with economists projecting a 2% expansion.
However, having rapidly slowed from last year’s highs, further signs of decelerating economic growth may hamper USD exchange rates this afternoon. Economic slowing coupled with easing domestic inflationary pressures could see markets dialling up their Federal Reserve interest rate cut bets once again, weighing on the ‘greenback’ later today.
Matt Colyar, Analytics Economist at Moody’s, wrote:
‘It would also be consistent with an economy expanding at a pace modestly below its estimated potential and consistent with the disinflation observed in the first half of 2024.’
In the meantime, investors may continue to favour USD’s stronger peers as they brace for the high-impact release.
Pound (GBP) wavers amid data lull
The pound (GBP) is trading in a wide range against its major rivals this morning amid a data-light start to the session.
An absence of UK releases leaves Sterling vulnerable to shifting Bank of England (BoE) interest rate cut speculations once again, as markets brace for the central bank’s looming monetary policy meeting.
According to a recent poll by Reuters, over 80% of economists totalling 49 of 60, interviewed last week, expect the central bank to lower its base rate to 5% next week, making a cut of 25 basis points on 1 August.
Allan Monks, economist at J.P. Morgan, said:
‘We look for a 25 basis point rate cut at next week’s meeting, although the call appears much closer than it did several weeks back. The case for lower rates is far from clear. If rates are lowered in August, it looks likely to happen on a close 5-4 vote’
However, when compared to a June poll of similar respondents, expectation of an August rate cut lots to have softened, with 97% of those surveyed said that the BoE was likely to begin its unwinding cycle this month.
While UK inflation unexpectedly held at the central bank’s target rate of 2% in June, it defied forecasts of a slightly cooler 1.9%. Similarly, services inflation remained uncomfortably high at 5.7%, suggesting that persistent inflationary pressures in the UK could see the BoE defer any rate reductions until later in the third quarter.
Pound US dollar exchange rate forecast: US GDP in spotlight
Looking ahead, a lack of wider releases in the UK could pull the Confederation of British Industry’s (CBI) latest surveys into focus. Both the CBI’s business optimism index and industrial trends orders survey are due for release later this morning, due to print at 15 and -19, respectively.
Looking to the US, aside from the weighty US growth release, the latest durable goods orders data. Increased manufacturing output could lend USD additional support this afternoon