Foreign Exchange Currency Outlook : GBP USD Rate Soars as US GDP Forecast is Downgraded and UK Economy Returns to Growth

April 28, 2011 - Written by John Cameron

STORY LINK Foreign Exchange Currency Outlook : GBP USD Rate Soars as US GDP Forecast is Downgraded and UK Economy Returns to Growth

The Pound Dollar exchange rate (GBP USD) is 1.6724. The Pound Euro exchange rate (GBP EUR) is 1.1252.

The US Dollar suffered severe selling pressure in late trading yesterday as the markets reacted to the contents of Fed Chairman Ben Bernanke’s landmark press conference.

As expected, the FOMC opted to maintain interest rates at their current 0-0.25% range, but the questions and answers session which followed, (the first press conference by a Fed Chairman in its 97 year history), contained significant information.

Bernanke announced that the Fed was downgrading its 2011 growth forecast from 3.4-3.9% to 3.1-3.3%, commenting that annualised Q1 growth was probably below the anticipated 2.0% level due to adverse weather conditions in the States. It appears certain that the official Q1 GDP figure, due for release later today, will cause further downside for the Greenback.

Bernanke went on to describe the US’s national debt situation as ‘very serious’ and highlighted long-term unemployment as ‘a significant concern’, with the US labour market ‘not in good shape’.

Bernanke accepted that price pressures were increasing, but followed the line of his UK counterpart Mervyn King in attributing these rises to external factors, commenting that although the most recent US inflation figure showed at 2.7%, he was confident that underlying inflation remained low. US interest rises now seem a distant possibility, however Bernanke did offer one chink of light to investors holding Dollar-denominated assets when he hinted that the Fed is likely to curtail its current Quantitative Easing programme when it ends in June.

Elsewhere, the Pound received a temporary boost with the release of Q1 GDP growth figures in the UK yesterday. The numbers showed that the British economy grew by 0.5% in the first three months of 2011, with the manufacturing and service sectors providing particular grounds for optimism. However, the figure follows a contraction of 0.5% in UK economic activity in Q4 2010, meaning that there has been no net UK economic growth over the past 6 months. This data is unlikely to provide any medium term support for Sterling.

Meanwhile, Japanese manufacturing data released overnight showed a record fall in industrial output of 15.3% in March, as Japanese factories struggled to source parts following last month’s natural disasters. If this number causes a dip in global appetite for risk, then the US Dollar could claw back some of its recent losses.

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TAGS: American Dollar Forecasts Daily Currency Updates Pound Dol Forecasts