Slew of Poor UK Data Knocks Pound to US Dollar Exchange Rate Down
A slew of concerning UK ecostats, coupled with a deal to avoid a US government shutdown, left the Pound Sterling to US Dollar (GBP/USD) exchange rate much weaker yesterday. The Pound (GBP) remained unappealing today.
After opening this week at the level of 1.2935, GBP/USD slumped on Monday afternoon and touched on a three-week-low of 1.2850. GBP/USD has seen limited demand since then and at the time of writing was trending near the level of 1.2866.
Investors sold the Pound yesterday as Britain’s latest growth and production stats showed surprising contractions.
With Britain’s economic outlook even worse than expected amid Brexit uncertainties, the safe haven US Dollar (USD) was more appealing in comparison.
The US Dollar has also benefitted from news that the US government has temporarily avoided another shutdown, as well as expectations for US economic strength.
Pound (GBP) Exchange Rates Tumble Following Slew of Concerning UK Ecostats
Investors sold the Pound on Monday afternoon, as investors continued to digest the morning’s disappointing UK data and what it meant for Britain’s economic outlook.
Britain’s Gross Domestic Product (GDP) growth rate stats for December and Q4 fell short in many key prints, with industrial and manufacturing production figures for December printing unexpectedly deep contractions.
Even December’s month-on-month figure printed a surprising contraction of -0.4%, rather than the expected stagnant 0.0%.
According to Kallum Pickering, UK Economist at Berenberg:
‘The thing that worries me most is that the monthly numbers for GDP were dreadful
The monthly data can be volatile but that does not bode well heading into 2019 with peak Brexit uncertainty.’
The disappointing data only exacerbated market concerns about how Brexit uncertainties were impacting Britain’s economic outlook.
US Dollar (USD) Exchange Rates Sturdy on US Political News
While recent US data has been solid enough to slightly bolster Federal Reserve interest rate hike bets, the US Dollar’s latest boost in demand was due to political developments.
Overnight, a deal was forged by US lawmakers to prevent another government shutdown from taking place. It marked a quick turnaround after shutdown fears kept pressure on the US Dollar for much of last week.
While the deal is not yet set in stone, investors are now more hopeful that another shutdown can be avoided.
On top of this, the US Dollar has also been a favoured safe haven currency over the past week due to weakness in rivals, including the Pound and the Euro (EUR).
The Euro has been unappealing on German recession fears. As the Euro has a negative correlation with the US Dollar this has made the US Dollar more appealing.
Pound to US Dollar (GBP/USD) Exchange Rates Anticipate Inflation Data and Political News
Monday’s UK data showed that domestic growth was worse than the Bank of England (BoE) expected, but if upcoming inflation data beats expectations it could still keep BoE interest rate cut bets from rising.
Of course, lower inflation would worsen concerns that the BoE could cut interest rates soon, which would weigh even more heavily on an already unappealing Pound.
Britain’s economic outlook has worsened largely due to Brexit uncertainties weighing on economic activity. As a result, investors are still highly anticipating potential developments in the Brexit process.
Further Brexit debates will be held in UK Parliament in the middle of the month, so a lack of developments in UK-EU or cross-party negotiations this week would dampen hopes and leave Sterling weaker.
As for the US Dollar, Wednesday’s US inflation rate stats could help to boost Federal Reserve interest rate hike bets and the US Dollar itself if they impress.
The Pound to US Dollar (GBP/USD) exchange rate will also be influenced by any shifts in sentiment regarding the possibility of a US government shutdown.