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Pound US dollar (GBP/USD) exchange rate forecast: US GDP to dent the ‘greenback’?

Pound US Dollar

The Pound US Dollar (GBP/USD) exchange rate is edging higher this morning following a better-than-forecast services PMI for the UK.

At the time of writing the GBP/USD exchange rate is trading at around $1.2388, up approximately 0.2% from this morning’s opening rate.

Pound (GBP) strengthens on upbeat PMIs

The pound (GBP) is strengthening this morning following the latest preliminary PMI releases from S&P Global. The preliminary figures reported a surprise uptick in the UK’s vital services sector, with the index printing at 54.9 in April. Meanwhile, manufacturing slipped back into contraction territory with a reading of 48.7.

Looking ahead, a speech from Bank of England (BoE) Chief Economist Huw Pill may drive GBP exchange rates this afternoon. Should Pill suggest that the UK is set to encounter further rapid disinflation, echoing recent commentary from senior BoE policymakers, ramped up interest rate cut bets see Sterling retreat.

A lack of high impact data in the coming days may then see investors turn to the Confederation of British Industry’s (CBI) latest business optimism index. With the index forecast to edge higher, printing in positive territory, recovering UK business sentiment may lend GBP some modest support.

On Thursday, the CBI distributive trades data is then due for release. Economists expect the retail sales gauge to print at 5, marking a second consecutive month of contraction. Following a period of prolonged weakness in the UK’s retail sector, further signs of improvement may see the pound garner some investor support.

Otherwise, amid geopolitical developments in the Middle East, the increasingly risk-sensitive pound may be left vulnerable to market volatility. Upbeat trading conditions could see GBP take precedent over its safer rivals.

US dollar (USD) subdued ahead of PMI release

The US dollar (USD) is flat this morning amid a data-light start to the session.

With the latest American PMIs due for release this afternoon, USD could see a volatile afternoon of trade ahead. With both the manufacturing and services index set to edge higher to 52, the ‘greenback’ could strengthen amid signs of strengthening business activity.

On Wednesday the latest durable goods orders are due out in the US. A forecast increase to 2.5% in March may lift USD, pointing to economic expansion in the manufacturing sector.

The highly impactful preliminary GDP reports are then due for release on Thursday, with economist forecasting that US growth in the first quarter of 2024 will have slowed to 2.5%. Should the data print as expected, reduced growth throughout the start of the year may prompt a shift in Federal Reserve interest rate cuts, potentially souring USD sentiment. However, a positive reading may see USD’s losses limited.

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