GBP USD Exchange Rate Dips on Worrying UK GDP Figures

July 26, 2017 - Written by John Cameron

STORY LINK GBP USD Exchange Rate Dips on Worrying UK GDP Figures

The Pound US Dollar (GBP USD) exchange rate continues to slide this morning as the UK’s GDP figures did little to bolster confidence in the UK economy.

Lacklustre UK GDP Appears to Confirm Economic Slowdown

Sterling struggled to repel the US Dollar’s advance this morning as the first estimate of the UK’s second quarter GDP was released.

According to data released by the Office for National Statistics (ONS) the UK economy grew 0.3% in the second quarter, a slight improvement on the 0.2% growth shown at the start of the year.

However while the UK economy appears to be expanding at a better pace than it did in Q1, it is still experiencing a notable slowdown in comparison to previous years, with growth in the first half of the year now at its slowest pace since 2012.

Some blame for the slowdown has been placed on the uncertainty surrounding the general election and its impact on Brexit as it continues to weigh upon both business and consumer sentiment.

Charles Hepworth, investment director at Swiss investment group GAM said;

‘Growth would have been expected to be negatively impacted by the political shocks which came part way through the quarter with the unexpected General Election result and the associated currency weakness affecting the domestic inflation picture.’

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‘The Office for National Statistics noted that the UK experienced ‘a notable slowdown’ in the first half of the year, reflective of the continuing uncertainty surrounding the Brexit process. This follows on from the IMF earlier this week cutting its 2017 growth forecast for the UK to 1.7% from 2%. The outlook isn’t as rosy as some suggest and affirms our cautious view on UK assets, particularly domestic equities and Sterling.’

The GDP report also reaffirmed the UK’s reliance upon its service sector, with growth in the area being the sole driver of growth in the three months to June as it offset contractions in both the manufacturing and construction sectors over the period.

Uptick in US Dollar Sentiment as Trump Edges out Win on Healthcare Bill

Meanwhile the US Dollar is on strong footing this morning following a much needed win for Donald Trump as the Senate voted to floor a debate on Trump’s bill to repeal his predecessor’s healthcare programme.

While there is a still a great deal of uncertainty over the whole process, with senators still unclear where the bill will involve just repealing ‘Obamacare’ or also implementing a replacement it is seen as a victory for Trump, who struggled to get win enough support for his previous healthcare proposals.

Markets had become increasingly concerned in recent months by Trump’s failure to push through legislation as they feared it reflected poorly on his chance to pass his long awaited stimulus plans and tax reforms, leading the President’s minor win in the Senate on Tuesday to be welcomed favourably by many USD investors.

GBP USD Forecast: Fed to Signal Further Rate Hikes in 2017?

Looking ahead the GBP USD exchange rate is likely to be closely tied to the latest Federal Reserve monetary policy meeting later this evening as investors look for any clues as to how the bank is likely to move in the future.

Analysts currently predict that underwhelming inflation is likely to cause the bank to adopt a more dovish outlook towards the future, likely prompting the US Dollar to retreat.

However should Fed Chair, Janet Yellen continue to hint at the possibility that interest rates could still be raised for a third time this year then the ‘Greenback’ could surge.

Meanwhile the Pound is likely to stumble at the end of the week with the release of the UK’s latest Consumer Confidence data, with economists predicting that the continued drop in real wages will cause household sentiment to slip again in July.

Current Interbank Exchange Rates

At the time of writing the GBP USD exchange rate was trending around 1.3011 and the USD GBP exchange rate was trending around 0.7684.

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TAGS: Pound Dollar Forecasts