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GBP/USD Exchange Rate Forecast: UK Avoids Recession but Economic Outlook Weak

GBP/USD Exchange Rate Firms as UK Economy Returns to Growth

The Pound US Dollar (GBP/USD) exchange rate is ticking higher this morning as markets welcome the release of the UK’s latest GDP figures.

At the time of writing the GBP/USD exchange rate is trading at around $1.2819, virtually unchanged from the day’s opening rate.

Pound (GBP) Gains but UK Economic Outlook Mixed

The Pound (GBP) has found some modest support at the start of this week, as data showed the UK avoided a recession in the third quarter.

According to a preliminary estimate published by the Office for National Statistics (ONS), UK Q3 GDP rose by 0.3%, rebounding from a 0.1% contraction in the second quarter.

While headline growth was positive, it was entirely down to a strong performance in July. This masked the fact that UK growth actually contracted in August and September, a downward trajectory which economists fear will persist into the fourth quarter.

We may gain more insight into how the UK economy is faring with the publication of the UK’s latest consumer price index (CPI) on Wednesday.

This is forecast to show that domestic inflation slowed to a near three-year low in October.

Not only is this another sign that the UK economy is slowing, but it may also put more pressure on the Bank of England (BoE) to implement a rate cut in early 2020.

US Dollar (USD) to be Influenced by Fed Rate Predictions?

The US Dollar (USD) is currently rangebound as USD investors eye the upcoming US CPI release and a testimony by Federal Reserve Chair Jerome Powell.

Both events will be used to gauge whether the Fed may be likely to continue with its recent monetary easing.

Following its October policy meeting, in which it implemented its third consecutive rate cut, the Fed signalled a pause to its easing, but stated more monetary accommodation could be on the cards if risk remains pointed to the downside.

Should US inflation undershoot expectations in October this could put more pressure on the Fed to continue cutting rates and therefore undermine the US Dollar.

However the real focus this week will be on Powell’s testimony in front of the Joint Economic Committee, in which he will be grilled about the bank’s monetary policy and the state of the US economy amidst trade tensions and a slowing global economy.

Expect the US Dollar to stumble if Powell strikes a cautious tone opening the door to further cuts.