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Pound US Dollar (GBP/USD) Exchange Rate to Slip on Weak UK GDP?

Pound US Dollar (GBP/USD) Exchange Rate to Fall as Investors Digest Poor UK Data?

The Pound US Dollar (GBP/USD) exchange rate is currently trending higher on strong GBP trading sentiment in anticipation of monetary policy tightening. However, some Bank of England (BoE) officials have relayed concerns, which are likely to be exacerbated by a lower-than-expected GDP growth rate for the month of July.

At the time of writing, the Pound US Dollar exchange rate is trading at $1.3872, up 0.2% from today’s opening levels.

Pound (GBP) to Weaken on GDP Data?

The Pound (GBP) may face headwinds today against its peers, as the UK’s GDP 3-month average printed below expectations at 3.6%.

July’s GDP growth was forecast to print at 0.6%, but instead slowed to just 0.1% in July; 2.1% below its pre-pandemic level. The services sector exerted downside upon expansion, as restaurants and non-essential shops have reopened with caution, or not at all.

Forecasts on further growth are mixed, with Conservative politicians ‘confident [that] Britain’s economy would continue to recover’, while economists support a more bearish outlook alongside members of the shadow cabinet.

Bridget Phillipson, the shadow chief secretary to the Treasury, said the government’s complacency was holding the country back: ‘the government has no plan, other than to plough ahead with a tax on jobs as well as a devastating cut to universal credit, taking money out of our high streets just when it is needed most.’

Meanwhile, Alpesh Paleja, the lead economist at the CBI lobby group, said temporary, targeted interventions from the government were needed to enable businesses to keep their doors open. Paleja recommended a relaxation of post-Brexit migration rules to help companies hire workers.

US Dollar (USD) Wavers on Risk-On Mood

The US Dollar (USD) is trading down against the majority of its peers today, as a risk-on mood undermines yesterday’s positive jobs data. Tapering speculation may cap USD downside, however.

Analysts are gearing up for an imminent tapering announcement from the Federal Reserve, as market speculations are fuelled by comments from officials. Governor Michelle Bowman remarked yesterday that the central bank was close to the start of tapering its $120bn in monthly bond purchases.

According to the Wall Street Journal:

‘Many [policymakers] have said in recent interviews and public statements that they could begin reducing [asset purchases]… While they are unlikely to do so at their meeting on Sept. 21-22, Fed Chairman Jerome Powell could use that gathering to signal they are likely to start the process at their following session, on Nov. 2-3.’

A strong rally in the US Treasury bond yields should also help to limit further losses for the ‘Greenback’; rising yields suggesting strong USD sentiment. The US dollar may enjoy further tailwinds on this basis.

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