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Will the BoE’s Improved Outlook Carry the GBP/USD Exchange Rate Past $1.32?

Bank of England

GBP/USD Exchange Rate Rallies on BoE’s Revised Forecasts 

The Pound to US Dollar (GBP/USD) exchange rate is trending higher this morning as GBP investors cheer the Bank of England’s (BoE) revised growth forecasts. 

At the time of writing the GBP/USD exchange rate is trading at around $1.3169, up roughly 0.3% from today’s opening rate. 

BoE’s Stronger Forecasts Provides Pound (GBP) Room to Extend Bullish Run 

The Pound (GBP) looks to test a new six-month high against the US Dollar (USD) today in the wake of the Bank of England’s latest rate decision. 

As expected, the BoE opted to leave its monetary policy untouched this month and in voting unanimously to leave interest rates at a record low of 0.1%, BoE policymakers have indicated that negative interest rates are not imminent. 

This of course was welcomed by GBP investors, but the main catalyst of Sterling’s rally appears to be the Bank’s new growth forecasts. 

The BoE now sees the UK economy contracting by 9.5% in 2020, compared with a previous forecast in May that the economy could shrink as much as 14%. 

Adding to this the BoE also offered a more upbeat outlook on the jobs market, predicting unemployment to peak at 7.5% this year against a previous estimate it could climb toward 10%. 

However, while the BoE’s is now predicting a less serve slump in 2020 it warns that the recovery may take longer. 

The BoE said: 

‘Nonetheless, the recovery in demand takes time as health concerns drag on activity. GDP is not projected to exceed its level in 2019 Q4 until the end of 2021.’ 

Overall, the BoE’s more sanguine outlook for the UK economy is sure to be welcomed by GBP investors and could see the Pound extend its bullish run well into August. 

US Dollar (USD) Selloff to be Turbocharged by Negative Payroll Figures? 

Potentially spurring the GBP/USD exchange rate even higher at the end of this week could be another US Dollar (USD) selloff, courtesy of the latest US payroll numbers. 

After Wednesday’s ADP figures showed employment growth slowed to just 167,000 in July, USD investors are bracing for a major miss in the more influential non-farm payroll reading. 

This is likely to trigger another bout of USD selling on Friday, as it will raise concerns over the trajectory of the US economic recovery, particularly as higher unemployment payments expired last week after US lawmakers failed to agree upon a new stimulus package.