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Pound to US Dollar (GBP/USD) Exchange Rate Edges Higher as Poor US Inflation Drags on ‘Greenback’

US Dollar Currency Forecast

GBP/USD Exchange Rate Rises as Risk Sentiment Improves

The Pound to US Dollar (GBP/USD) exchange rate rose by 0.3% today after the ‘Greenback’ suffered a blow from weaker-than-expected inflation data. The pairing is currently trading around $1.229.

Yesterday saw US inflation fall by -0.8%, its largest drop since 2008. As a result, the US Dollar has continued to suffer from growing fears for the American economy, which has been besieged by negative economic data for the past month.

Jeffrey Sparshott, an analyst of the US economy for The Wall Street Journal, commented:

‘The coronavirus pandemic pushed down April consumer prices by the most since the last recession as efforts to contain the virus disrupted demand for energy, travel, clothing and other goods and services.’

The US Dollar (USD) is also struggling from rising fears over the US’ own coronavirus crisis, which is continuing to rise, making it one of the worst-affected countries in the world.

Meanwhile, the ‘Greenback’ is also suffering from a sell-off as investors favour riskier assets. And with Europe’s economy continuing to benefit a number of its largest economies easing lockdown restrictions, we should expect global risk sentiment to improve.

ERIK Bregar, the Head of Currency Strategy at the Exchange Bank of Canada, Toronto, commented:

‘Everybody is feeling a little better right now. The risk sentiment pendulum has swung from negative in Asia to currently positive. The Fed buying corporate bond ETFs today is adding to the risk-on move.’

Pound (GBP) Rises as UK GDP Comes in Better-than-Expected for the First Quarter

The Pound (GBP) edged higher today on better-than-expected UK GDP data for the first quarter. Though the figure fell from -0.2% to -5.8%, this was better than the -8% which was previously forecast.

Artur Baluszynski, the head of research and investment at Henderson Rowe, was downbeat in his assessment, however:

‘The numbers are really bad, especially considering that the lockdown only started mid-March. One of the reasons why the -2% figure is better than expected is because the real impairment of the consumer demand is likely to show up in April numbers.’

‘However, we can now see how the UK’s more relaxed lockdown measures helped the economy to fare better than France or Spain which contracted close to 6% over the same period.’

Meanwhile, Today also saw the UK industrial production report for March, which fell from -0.1% to -4.2%.

Nevertheless, the Pound (GBP) did benefit from Chancellor Rishi Sunak’s assurance that the British economy can get through the imminent recession. Mr Sunak commented today that ‘we can get through this period of severe disruption and emerge stronger on the other side’.

GBP/USD Forecast: Could Rising US Unemployment Further Weaken the ‘Greenback’?

US Dollar (USD) investors will be looking ahead to tomorrow’s release of the US Initial Jobless Claims. However, if this continues to rise, then we could see the ‘Greenback’ sink as America’s economic situation continues to deteriorate.

Looking further ahead to Friday, USD investors will be keeping a close eye on the preliminary US Michigan Consumer Sentiment Index for May. However, if this confirms consensus and sinks to 68, then we could see further US economic woes drag down the US Dollar.

The GBP/USD exchange rate could edge higher this week if the UK’s coronavirus rate of infection rate shows any signs of easing. Furthermore, any further details on the UK’s lockdown easing plan would also provide further certainty and prove Pound-positive.