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Pound US Dollar Exchange Rate Forecast: GBP/USD to Strengthen on Robust US GDP Figures?

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GBP/USD Exchange Rate Slips Below $1.25 in Cautious Trade

The Pound US Dollar (GBP/USD) exchange rate is trading on the back foot this morning, as a cautious market mood underpins USD demand.

At the time of writing the GBP/USD exchange rate is trading at around $1.2461. Down roughly 0.3% from this morning’s opening rate.

US Dollar (USD) to Weaken if Upbeat US GDP Cheers Markets?

The US Dollar (USD) is currently trending higher. The safe-haven currency being underpinned by a cautious market mood ahead of high-impact US data later in the week.

Potentially the most impactful data will be the publication of the latest US GDP estimate on Thursday.

The preliminary growth figures are forecast to report US growth slowed modestly from 2.6% to 2% in the first quarter of 2023.

A relatively robust pace of growth could help to assuage global growth concerns and help to cheer market sentiment.

An improving market mood could result in investors shunning the US Dollar in the latter half of the week.

Also potentially acting as a headwind for the ‘Greenback’ will be Friday’s core PCE price index. The Federal Reserve’s preferred measure for inflation is forecast to have fallen again in March.  

This could trigger another scaling back of Fed interest rate hike bets and pile more pressure on USD exchange rates.

Pound (GBP) to be Supported by BoE’s Rate Hike Speculation?

In the absence of any notable UK economic releases, any movement in the Pound (GBP) through the remainder of this week may be driven primarily by speculation ahead of the Bank of England’s (BoE) next interest rate decision in May.

Recent UK data has cemented expectations of another 25bps rate hike from the BoE next month.

Kirstine Kundby-Nielsen, FX analyst at Danske Bank, comments:

‘Inflation hasn’t come down sufficiently, the labour market continues to be tight and wage growth is still accelerating so we think the BoE will be inclined to go with another 25 basis point hike in May.’

However any subsequent movement in the Pound will be dependent on the BoE’s forward guidance.

Analyst previously forecast May’s rate hike might be the BoE’s last in its current tightening cycle. But in the wake of another double-digit inflation reading in March some are forecasting rates could rise as high as 5% by the end of 2023.

If the BoE signals it has more work to do to tackle inflation, the Pound could surge.

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