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GBP USD Exchange Rate Recovery Undermined by Weak Spending Growth

Pound US Dollar Currency Forecast

The Pound US Dollar (GBP USD) exchange rate’s attempts to mount a recovery this morning have been hampered by reports that UK consumer spending slowed in the first quarter of 2017.

According to data compiled by IHS Markit on behalf of Visa, March capped off the weakest quarter for consumer spending growth since Q4 2013.

The Pound weakened as UK consumers came under increasing pressure last month, amid rising inflation and anaemic wage growth that rapidly eroded household spending power and forced families to tighten their belts.

Annabel Fiddes, Economist at IHS Markit said;

‘Our data suggests that consumer spending is beginning to slow from the strong levels seen in late 2016, as rising prices increasingly squeeze household purchasing power. While overall spend continued to expand in March, the average growth rate for Q1 slowed down sharply to 0.9% from 2.7% in Q4 2016.’

The slowdown in March was largely led by a decline in traditional areas of retail such as Food & Drink, which registered a -0.4% drop, and Clothing & Footwear, which slumped by -0.2%.

Analysts at Markit also predict that this downtrend is likely to continue into the second quarter, causing further concerns over the future of GBP USD.

Meanwhile the US Dollar’s resilience comes ahead of a speech from Federal Reserve Chair Janet Yellen later this evening as a surprise drop in the US Unemployment Rate from 4.7% to a ten-year low 4.5% in March has led to further speculation of an incoming Fed rate hike.

While markets do not currently expect the Fed to raise interest rates at its next monetary policy meeting at the start of May, an upbeat statement from Yellen later today may prompt investors to increase the odds of a rate hike in June.

However, with the US labour market adding only 98,000 jobs last month, the lowest rate of growth since 2007, Yellen may paint a more neutral outlook for the Fed’s monetary policy.

Looking ahead GBP USD may strengthen again tomorrow when the UK releases its latest CPI figures, with British inflation expected to hold at 2.3% in March, despite the downturn in fuel prices following the sharp drop in the oil market last month.

Current Interbank Exchange Rates

At the time of writing the GBP USD exchange rate was trending around 1.23 and the USD GBP exchange rate was trending around 0.80.