Pound Sterling to US Dollar Exchange Rate Advances on Underwhelming US Growth Report
The US Dollar’s (USD) recent bullish streak may have come to an end this week. Since touching on its worst 2018 levels on Tuesday, the Pound to US Dollar (GBP/USD) has been recovering and its gains accelerated due to underwhelming US growth data.
GBP/USD opened this week at the level of 1.3302. On Tuesday the pair tumbled and hit a low of 1.3218. This was GBP/USD’s worst 2018 level and the lowest for the pair since November 2017.
Since Wednesday though, GBP/USD has been climbing. Following the publication of the latest US growth projections, GBP/USD jumped and on Thursday morning the pair was trending near a weekly high of 1.3341.
Sterling has seen little in the way of domestic support, though it was supported slightly by some UK consumer confidence data on Thursday.
Pound (GBP) Exchange Rate Support Bolstered Slightly by UK Consumer Confidence Report
While investors remain anxious about Britain’s economic outlook and Bank of England (BoE) interest rate hike bets remain low, the Pound did see some support on Thursday in the form of May’s UK consumer confidence results.
Gfk published its May consumer confidence results on Thursday morning and the figure came in slightly higher than analysts expected.
Confidence was forecast to have lightened slightly from -9 to -8, but unexpectedly lightened to -7.
Still, with the confidence print still in the negatives economists and investors were still not particularly bullish about it. Gfk’s own Joe Staton noted that overall, consumers remained ‘resolutely downbeat about the general state of the economy’.
Thursday’s other UK data was mixed and too low-influence to give investors much reason to buy Sterling.
Nationwide’s house prices report from May fell short in monthly and yearly prints, while the Bank of England’s latest consumer credit figure was higher than forecast.
As Britain’s economic outlook remains muted overall, the primary reason for GBP/USD gains in recent sessions has been US Dollar weakness.
US Dollar (USD) Exchange Rate Rally Dials Back as US Growth Falls Short of Forecasts
Investors hoping that the Federal Reserve would aim for four 2018 interest rate hikes rather than just three were disappointed on Wednesday, as the latest US growth projections fell short of expectations.
Q1 2018’s US Gross Domestic Product (GDP) projection was expected to come in at 2.3% quarter-on-quarter, but instead is projected to have slowed from 2.9% to just 2.2%.
The US Q1 PCE prices projection also disappointed, unexpectedly slipping from 2.7% to 2.6%.
As the US economy may not be performing quite as strongly as investors expected, this weighed on Federal Reserve interest rate hike bets and the US Dollar weakened.
Economists noted that the slowdown in growth was due to weaker consumer spending in the first quarter.
While GBP/USD has been recovering since Wednesday, largely on the back of this data, the US growth outlook is still solid overall. According to Scott Hoyt from Moody’s:
‘Growth is set to rev up soon given the deficit-financed tax cuts and a big increase in federal government spending,’
Pound to US Dollar Exchange Rate Forecast: US Non-Farm Payrolls Could Influence GBP/USD Outlook
There is still a chance that Pound to US Dollar (GBP/USD) exchange rate trade will see a shift in direction before markets close for the week – as major US ecostats will be published on Friday.
If Friday’s upcoming US Non-Farm Payrolls report falls short of forecasts like US growth did, the US Dollar could weaken further and the Pound to US Dollar exchange rate could end the week near its best weekly levels.
US Non-Farm Payrolls are forecast to have improved from 164k to 183k in May. The key US unemployment rate is predicted to remain at 3.9%.
Also notable on Friday will be Britain’s May manufacturing PMI from Markit, and the US manufacturing PMI from ISM.
As Britain’s economic outlook remains murky, a stronger-than-expected UK manufacturing report could boost Sterling support.
Overall though, the Pound to US Dollar (GBP/USD) exchange rate outlook is unlikely to change significantly unless US jobs data is surprisingly weak. This would cause Fed rate hike bets to weaken and the US economic outlook to become more uncertain.