Pound US dollar (GBP/USD) ticks up amid UK growth
The pound US dollar (GBP/USD) exchange rate is edging higher this morning following the UK’s latest GDP release.
At the time of writing the GBP/USD exchange rate is trading at around $1.2714, up approximately 0.2% from this morning’s opening rate.
Pound (GBP) strengthens following GDP release
The pound (GBP) is inching higher this morning following the UK’s latest GDP report.
The preliminary reading showed that the UK economy expanded by 0.6% during the second quarter of 2024, in alignment with market projections and modestly softening from a previous 0.7% pace of growth.
Economists appear optimistic about the release, which signals that the British economy continues to strengthen after briefly dipping into a technical recession last winter.
Neil Birrell, chief investment officer at Premier Miton Investor commented:
‘The second quarter seems like a long time ago, but the GDP data confirms that the UK economy is in good health. The Bank of England is in the nice position, unlike other central banks, of having a level of surety in the data it is seeing, when setting policy.
With inflation playing ball as well, the path to lower interest rates looks to be set, the timing of the cuts is now the focus.’
As investors focus on the Bank of England’s (BoE) monetary policy path, could signs of improving economic activity in the UK lend the central bank more scope to defer further rate reductions, thereby boosting the pound?
US dollar (USD) subdued ahead retail data
The US dollar (USD) is struggling to edge higher this morning ahead of some market-moving US releases.
Ahead of the latest American retail and factory data, due for release this afternoon, investors appear largely reluctant to place any aggressive bets on the ‘greenback’ in the interim.
Meanwhile, yesterday’s cooler-than-forecast US inflation report continues to undermine USD exchange rates in the absence of fresh data so far today.
Preston Caldwell, Chief US Economist at Morningstar, observed that easing US inflation fuels the likelihood of an aggressive rate cut cycle from the Federal Reserve in the near term.
Powell said:
‘Optimal monetary policy calls for a hefty reduction in the federal-funds rate in short order.
The Fed’s rhetoric is steadily shifting in this direction as well. Our base case for the upcoming September 2024 meeting is still for just a 0.25% cut, rather than the 0.5% point cut that many market participants are now expecting.’
Therefore, USD may remain vulnerable to losses as markets brace for further high-impact US publications.
Pound US dollar exchange rate forecast: rebounding US retail sales to lift USD?
Looking ahead, the latest retail sales data is due for release in the US this afternoon. Economists expect to see a return to growth in the American retail sector, which will likely boost USD sentiment after a week of somewhat bleak releases.
Looking to the UK, the next notable release arrives tomorrow morning, with the UKs latest retail sales data. Economists expect to see UK retail activity rebound in July, increasing by 0.5%. Should the data print as forecast, signs of improving consumer activity and accelerating spending across UK households may bolster GBP exchange rates, signalling that the UK’s economic woes are less prominent heading into the third quarter.
Elsewhere, global risk dynamics could continue to drive movement in the pound US dollar exchange rate. Gloomy trading conditions could bolster the safe-haven ‘greenback’, while the increasingly risk-sensitive pound may benefit from a cheery market mood.