Mixed UK Gross Domestic Product Data Weighs on Pound US Dollar Exchange Rate
Better-than-expected elements of the fourth quarter UK gross domestic product report were not enough to keep the Pound to US Dollar (GBP/USD) exchange rate from shedding some ground.
While growth did not contract quite as sharply on the year in December as forecast, coming in at -6.5% rather than -8%, this still represented a slowdown for the UK economy.
As a result, this limited the potential for Pound Sterling (GBP) gains ahead of the weekend, especially given existing concerns over the economic outlook.
With the current national lockdown looking set to keep growth under pressure in the first quarter investors saw little cause for confidence in the GDP report.
Even so, as the quarterly growth rate still proved positive in the final three months of 2020 this did help to limit the potential for GBP exchange rate losses for the time being.
Pound Exchange Rates Set to Weaken Ahead of UK Inflation Report
Support for the Pound may remain muted heading into next week, with markets bracing for the release of Wednesday’s inflation data.
The GBP/USD exchange rate could come under fresh pressure if the headline inflation rate falters on the month as forecast.
With investors expecting to see the monthly inflation rate slip from 0.3% to -0.4% in January this could give the Bank of England (BoE) renewed cause for caution.
As long as inflation continues to trail significantly below the central bank’s target this could keep the potential for further monetary loosening measures on the table, in spite of policymakers’ recent move to talk down negative interest rates.
On the other hand, an upside surprise from the inflation data may help the Pound to return to a positive footing against its rivals once again.
Speculation over the future of the UK lockdown may also provoke volatility for GBP exchange rates in the days ahead.
Signs of US Retail Recovery Set to Boost US Dollar Demand
Comments from Federal Reserve policymakers could put some pressure on the US Dollar (USD), meanwhile.
Any fresh indication of anxiety within the Fed may leave USD exchange rates vulnerable to another bout of selling pressure.
However, the US Dollar could find a rallying point on the back of January’s US retail sales figure next week.
With sales forecast to bounce back from December’s -0.7% contraction with monthly growth of 1.2% worries over the economic outlook may temporarily diminish.
Evidence that US consumers started to shrug off the impact of the Covid-19 crisis once again at the start of the year may give the US Dollar a solid boost across the board.
Any fresh deterioration in the general sense of market risk appetite may also help to drag the Pound to US Dollar exchange rate lower.