GBP/USD Exchange Rate Falls Despite Upbeat BoE Growth Forecast
The Pound US Dollar (GBP/USD) exchange rate dipped today despite the Bank of England (BoE) predicting that the UK economy will rebound at its fastest rate since WWII. The pairing is currently fluctuating around $1.38.
The BoE held interest rates at 0.1% today, but upgraded its growth forecasts for the UK economy, thanks to the Government’s Covid-19 vaccination effort, and falling numbers of daily infections.
Silvia Dall’Angelo, senior economist at the International Business of Federated Hermes, explains:
‘Accordingly, the Bank of England now expects UK GDP to go back to its pre-crisis level by the end of this year, a quarter earlier compared to its February forecasts. In addition, following the extension of the furlough scheme, the unemployment rate is expected to peak lower at 5.4% in Q3 of this year, rather than close to 8% as per February’s forecasts.’
Today also saw the release of the latest UK services PMI for April, which beat forecasts and rose to 61.
Tim Moore, the economics director at IHS Markit, the company which compiled the survey, commented on the data:
‘April data illustrates that a surge of pent up demand has started to flow through the UK economy following the loosening of pandemic restrictions, which lifted private sector growth to its highest since October 2013.’
As a result, the Pound has benefited from an improved outlook for the UK economy. However, this was not enough to boost Sterling against the stronger US Dollar.
US Dollar (USD) Edges Higher as US Nonfarm Productivity Rises in the First Quarter
The US Dollar (USD) rose today following the publication of the latest flash Nonfarm Productivity figure for the first quarter. The figure beat forecasts, rising by 5.4%, and has buoyed optimism in the world’s largest economy.
Today also saw the latest US initial jobless claims fall below forecasts to 498 thousand.
As a result, demand for the ‘Greenback’ has risen on hopes of a continued improvement in the US labour market.
Beth Ann Bovino, U.S. chief economist for S&P Global Ratings, commented on the figure:
‘Overall it looks like we’re seeing healing in the jobs market. That’s much better than just over a year ago, but that’s still double what there was pre-crisis. It would be [considered] bad in a normal recession, let’s just put it that way.’
Yesterday also saw Janet Yellen, the United States Secretary of the Treasury, comment on the likelihood of an interest rate from the Federal Reserve.
Yellen suggested that interest rates may have to rise to prevent ‘overheating’ of the US economy:
‘It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat, even though the additional spending is relatively small relative to the size of the economy.’
Pound US Dollar Exchange Rate Forecast: Could a Strong UK Construction PMI Boost Sterling?
US Dollar (USD) traders are awaiting tomorrow’s publication of April’s US nonfarm payrolls figure.
Any further improvement in the outlook for the US economy could further boost the USD/GBP exchange rate.
Tomorrow will also see the release of the latest US unemployment rate figure for April. If this continues to show an improvement in the US labour market, then the ‘Greenback’ could head higher against Sterling.
The Pound US Dollar (GBP/USD) exchange rate could head higher, however, if tomorrow’s release of the latest UK construction PMI shows a robust rebound in the nation’s construction sector.