USD GBP Exchange Rate Rallies as UK Data Disappoints

July 7, 2017 - Written by John Cameron

STORY LINK USD GBP Exchange Rate Rallies as UK Data Disappoints

The US Dollar Pound (USD GBP) exchange rate skyrocketed this morning, recouping the majority of Thursday losses as the UK posted some disappointing economic data.

Pound (GBP) Plummets as UK Trade Deficit Widens

The Pound slumped against the US Dollar this morning as the Office for National Statistics (ONS) delivered a smattering of poor economic data for the UK.

Of particular concern to investors this morning was the widening of the UK’s trade deficit, with May’s Trade Balance tumbling from -£2.12bn to -£3.07bn.

The UK’s latest trade figures were largely hit by a notable rise in the import of transport equipment, oil and electrical machinery, while at the same time reporting a decline in British service exports.

While many analysts previously forecasted that the devaluation of the Pound would help to boost UK exports thanks to lower prices for foreign buyers, it looks like this is yet to come to fruition.

Meanwhile UK data also showed a drop in domestic Manufacturing Production in May with output plummeting from 0.2% to -0.2%, falling well short of an expected rise to 0.5% as the sector was hit by a notable drop in car production.

This was also accompanied by a fall in production for both the Construction and Industrial sectors over the same period, and lead to analysts forecasting that the UK’s GDP may not have rebounded as strongly in the second quarter as some had hoped.

Howard Archer, Chief Economic Advisor to the EY ITEM Club, said;

‘Based on today’s data and the business survey results for June, we now think that industrial production is likely to have contracted by 0.5% in Q2, with construction output down 1.8%.’

‘And though an improved performance from the services sector will provide some support, GDP is likely to have grown by just 0.3% with the risks to that projection skewed to the downside.’

US Dollar Strengthened as Trade Gap Narrows

The US Dollar meanwhile was strengthened by the release of America’s trade data yesterday which showed a slight narrowing in its own trade deficit.

According to data released by the US Commerce Department the trade deficit tumbled from -$47.6bn to -$46.5bn in May, with record higher US exports being driven by strengthening petroleum sales and a further rise in demand for US consumer goods.

Michael Pearce, US economist at Capital Economics, said;

‘The survey evidence suggests that annual export growth will accelerate from here, reflecting the strength of the global economy and the slight depreciation of the US dollar since the beginning of the year.’

‘That is a big change from the situation just a few years ago, when the sharp appreciation of the dollar caused the trade deficit to rise. Net trade subtracted 0.7 percentage points from growth in 2015 and 0.1 points in 2016.’

USD GBP Exchange Rate Forecast: US Payroll Data Ahead

The USD GBP exchange may be able to extend its gains even further later this afternoon with the release of the latest US Non-farm Payroll figures, with economists forecasting that the US economy will have welcomed 179,000 American’s to the workforce in June, up from 138,000 the month before.

However throwing a possible spanner into the works will be the G20 summit in Germany today, with markets bracing for possible tensions between President Donald Trump and other world leaders, with his first face-to-face with his Russian counterpart, Vladimir Putin likely to be closely watched.

Meanwhile the Pound may attempt to mount a recovery following a speech by Bank of England Governor Mark Carney scheduled for later today, with investors hoping that Carney will elaborate on comments he made last week that hinted towards the possibility of the bank raising interest rates in the near future.

Current Interbank Exchange Rates

At the time of writing the USD GBP exchange rate was trending around 0.7747 and the GBP USD exchange rate was trending around 1.2910.

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