GBP USD Exchange Rate Trades at 7-Month High despite Slowing UK Growth

April 28, 2017 - Written by Frank Davies

STORY LINK GBP USD Exchange Rate Trades at 7-Month High despite Slowing UK Growth

With UK GDP failing to support Sterling, the UK currency has instead risen on a Bank of America Merill Lynch (BAML) forecast upgrade. This has pushed the Pound to 1.29 against the US Dollar.
In a note to clients, BAML Currency Analyst Kamal Sharma said;

‘The announcement of a June 8th general election was a game-changing event for Sterling. Sterling will face Brexit challenges but its day of reckoning has been pushed further into the future’.

BAML has accordingly improved its outlook on the Pound, estimating average GBP USD trading at 1.25 in Q1, compared to 1.15. The annual predictions have also been boosted – BAML forecasts GBP USD to end 2017 at 1.27, up from 1.19.

The UK’s domestic data has been less supportive – initial Q1 GDP growth has slowed to 0.3% on the quarter and risen to 2.1% annually. Both movements missed forecasts.

The USD GBP exchange rate has been the worst since October today, with GDP news shattering trader confidence.

The growth rate has been the weakest in three years, with Q1 figures showing a lower-than-forecast quarterly drop from 2.1% to 0.7%.

The Pound may be less volatile next week, with the only domestic data covering purchasing manager indexes (PMIs).

Showing activity in manufacturing, construction and services, the PMIs will come over Tuesday to Thursday.

March’s figures showed stable growth in all three fields. The services sector is the largest of the three, so unless it contracts unexpectedly, the Pound may not move significantly.

Next week will be packed with high-impact US economic data, which means high USD GBP volatility could be in store.

Monday will bring a manufacturing PMI, forecast to show slowing activity. Wednesday will be busier, starting with April’s ADP employment change.

The number of employed is expected to rise by 190k, less than the previous 263k result. Another PMI, covering non-manufacturing areas, is predicted to show growth. Wednesday’s closing news will be a Federal Reserve interest rate decision; no rate change is expected from 1%.

Any prior USD GBP gains could turn to losses on Thursday, as the trade balance is predicted to show a growing deficit.

Friday will bring April’s non-farm payrolls and unemployment rate stats. Payrolls, another measure of employment, are expected to rise by 180k. This would be a great improvement on the previous 98k rise.

Despite this optimism, the US Dollar could still drop if unemployment rises from 4.5% to 4.6% as forecast.

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TAGS: Currency Predictions Daily Currency Updates Poun Forecasts