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Pound US Dollar (GBP/USD) exchange rate forecast: US GDP in Focus

Stack of US Dollar banknotes

GBP/USD Rangebound amid Lack of Data

The Pound US Dollar (GBP/USD) exchange rate wavered today with both UK and US data in short supply.

At the time of writing the GBP/USD exchange rate is trading at around $1.2705, virtually unchanged from this morning’s opening rate.

US Dollar (USD) Wavers amid Data Lull

The US Dollar (USD) is flat today amid a lack of notable UK data releases.

Looking ahead, the ‘Greenback’ may see a volatile week of trade ahead, with the release of the latest preliminary PMI reports on Wednesday. Economists expect to see growth in the services sector fall to 51 in January, down from December’s 51.4. Slowing expansion may serve to underwhelm investors, alongside an ongoing slump in US manufacturing, forecast to hold at 47.9.

On Thursday, new employment data may dent USD, with economists expecting to see an uptick in both new and continuing jobless claims. Should the data print as expected it may serve to reinforce concerns of a cooling US labour market, causing the ‘Greenback’ to slump.

On Friday, a forecast decline in GDP in the fourth quarter of 2023 may see investor interest in USD dwindle. Economists expect to see growth reported at 2% down from 4.9% in the third quarter. Signs of slowing economic expansion may serve to increase the likelihood of a Federal Reserve interest rate cut in March this year, thereby weakening the US Dollar.

Pound (GBP) Buoyed by Declining UK Debt

The Pound (GBP) managed to keep its head above water today following the UK’s latest government borrowing data. Public sector net borrowing came in significantly lower than forecast on Tuesday morning, which served to boost hopes of potential tax cuts in the coming months.

Looking ahead, the latest purchasing managers index (PMI) preliminary readings are due for release on Wednesday and are likely to drive significant GBP volatility.

While expansion in the services industry is forecast to have slowed in January, economists expect the index to print above 50 for a third consecutive month, at 53.2, which may boost Sterling sentiment. However, with the manufacturing sector index expected to print at 46.7 in January, lacklustre growth may serve to cap GBP’s upside potential. On Thursday, the Confederation of British Industry’s (CBI) monthly retail sales balance is forecast to increase to -18 in January, rising from a drastic and unexpected slump of -36 in the previous month. Improving conditions within the UK retail sector could serve to lend GBP some modest support. However, reports of continually weak retail conditions in the wake of last week’s significant decline in retail sales may serve to dent GBP, amid further confirmation of loosening within the sector.

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