GBP USD Exchange Rate Finds Relief as UK GDP Prints as Forecast

Modified: Friday, 25 August 2017 07:23 BST - Written by John Cameron

STORY LINK GBP USD Exchange Rate Finds Relief as UK GDP Prints as Forecast

The Pound to dollar exchange rate clawed back some of its losses on Thursday 24th August as UK gross domestic product (GDP) growth printed in line with expectations and markets braced for tomorrow’s comments from Fed Chair Janet Yellen at the Jackson Hole symposium.

As currency markets enter the final session of the week, GBP/USD is quoted at 1.28079, which equates to $1 = £0.78077.

The UK’s GDP demonstrated quarterly growth of 0.3%, in line with previous estimations and slightly up from the previous quarter’s 0.2%. This equates to an annual figure of 1.7%, also in line with estimations, though lower than the previous period’s 2% expansion.

These figures demonstrate, at the very least, that the UK’s economy continues to chug along, despite the sheer and vast dominion of Brexit-related uncertainty.

Whilst the overall GDP print was on target, the internal figures were a bit more controversial.

Household consumption growth decelerated, and more notably, business investment outright stalled to 0%.

Chief investment officer at Close Brothers Asset Management, Nancy Curtin acknowledged that whilst the growth continues, the underlying drivers of growth remain below par. He surmised the situation thusly:

‘The UK’s economy continues to rumble on despite threats of the Brexit bogeyman on the horizon. The small rise in wage growth has been negated by inflation and the effect of sustained price rises is taking a bite out of consumer spending power. Fears of cheap consumer debt fuelling spending is proving to be a thorn in the Bank of England’s side as it tries to navigate the potential need for a rate rise’.

Fed Esther George Pushes for Rate Hike, USD Remains Bearish

Kansas City Fed President Esther George took the opportunity today to announce that low inflation within the US shouldn’t negate the possibility of continued rate hikes, particularly one final hike in 2017.

Inflation in the US has consistently failed to reach the 2% target, a target that central banks deem to be indicative enough of economic stability (and growth) to warrant a rate hike.

Various other officials have taken a dovish stance to this possibility, but George’s sentiment was hawkish, expressing confidence that the current level of inflation was enough to advocate tighter policy.

However this is not much of a surprise, as George is, historically, a hawkish fed official, thus the movements resulting for the US Dollar have been minimal, especially with the Jackson Hole Symposium looming.

GBP USD Forecast: Jackson Hole Liable to Cause Volatility

Tomorrow a huge number of prominent finance ministers, central bankers, academics and economists will descend upon Jackson Hole Valley for the annual economic symposium. Notably, amongst them will be Fed Chair Janet Yellen.

Economists are curious to hear what Yellen has to say, especially regarding the economy and indeed the US Dollar, though the possibility that she will directly address such things remains somewhat low.

She may, however, take the opportunity to address what have been deemed ‘systemic risks’, like those discussed in the July monetary policy meeting. If this occurs then a glimpse into sentiment regarding monetary policy may be ascertained depending on her reaction to said risks.

Tomorrow will also be a big day for US data, as the figures regarding new orders for US manufactured durable goods will be revealed. The month-on-month figure is currently forecast to present a severe drop from 6.5% to -6%, an event that would, should it occur, allow the Pound to capitalise against the ‘Greenback’ as the trading week ends.

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