Weaker Dollar Pushes the Pound Sterling US Dollar (GBP/USD) Exchange Rate Higher
The Pound Sterling US Dollar (GBP/USD) exchange rate rose by around 0.5% on Thursday. This left the pairing trading at around $1.3104.
The Pound was able to make gains against a weaker US Dollar during today’s session as traders continued to shrug off earlier GDP data.
The latest UK GDP data showed the British economy fell into a recession after growth plummeted by -20.4% in Q2.
This was the largest contraction from any major economy and significantly larger than the -9.5% slump in the United States.
The downbeat data was offset by increased Dollar weakness, which pushed the pairing higher. In a noted, RBC strategists noted:
‘In reality, most market participants had been pencilling in a decline in Q2 GDP of ‘around’ 20% for some time now so yesterday’s release from the ONS didn’t come as too much of a surprise even if the magnitude of the contraction dwarfs anything any of us have experienced before.’
Although, today’s gains were limited as traders remained cautious about the long-term outlook for Britain’s economy. This has left investors generally bearish on GBP.
US Dollar (USD) Struggles as Traders Focus on US-China Tensions
Meanwhile, the Dollar was left weaker. Investors lost hope that Washington would agree on a stimulus plan to help support the struggling economy.
This caused the US currency to slump to its lowest level in a week against a basket of currencies today.
Rising geopolitical tensions, an increase in coronavirus cases, and a stalemate in negotiations over a US coronavirus relief package all weighed on USD.
US President Donald Trump has accused Democrats in Congress of not wanting to negotiate a aid package.
Added to this, US-China tensions remain in focus. US and Chinese officials are scheduled to review the Phase One deal this weekend.
On Thursday, Assistant Minister of Commerce Ren Hongbin said Beijing hopes the US will stop taking restrictive and discriminatory action against firms. This would mean it would be easier to create conditions for the implementation of the Phase One deal.
‘Under the current situation, it is required that the both sides need to work together and step up cooperation to overcome the difficult times.
‘We hope U.S. would stop taking any restrictions and discriminatory action against Chinese companies and create conditions for the implementation of the Phase 1 trade agreement.’
Pound US Dollar Outlook: US Jobless Claims in Focus
Looking ahead to this afternoon, all eyes will be on the latest US initial jobless claims data. It is expected to show the number of Americans out of work remained at unprecedented levels.
While markets are expecting another week of declines in initial claims, signs the rebound in the US is faltering will weigh on USD.
Meanwhile, Friday’s release of the latest US retail sales could disappoint investors and send the ‘Greenback’ lower.
If retail sales do not rise as high as expected in July due to the coronavirus pandemic, it will weigh on Dollar sentiment and send the currency lower. This will leave the Pound US Dollar (GBP/USD) exchange rate trading higher.