GBP USD Exchange Rate Fluctuates on Mixed News for Both Nations

November 23, 2017 - Written by John Cameron

STORY LINK GBP USD Exchange Rate Fluctuates on Mixed News for Both Nations

The Pound US Dollar exchange rate fluctuated today as markets reacted to fresh caution from the Federal Reserve and news that the Office for Budget Responsibility (OBR) has downgraded its growth forecasts for the UK.

Fed Moves Cautiously, USD Exchange Rates Falter

The US Dollar continued its fall today as markets reacted to the release of some cautious Federal Reserve meeting minutes.

The minutes revealed that ‘many participants’ at the last meeting were concerned about limp inflation levels in the US - anxious that it would remain below the bank’s 2% target for a lot longer than expected.

This news echoed comments from Fed Chairmen Janet Yellen, who has historically shared her uncertainties regarding inflation in the US and how it might affect monetary policy in the years ahead.

If inflation does continue to remain weak, then the Fed might steer away from further rate hikes in 2018, a possibility that has scared markets.

Nonetheless, the sentiment remains that a third and final rate hike will occur in the ‘near term’, though this may hinge on whether they see inflation picking up speed.

GBP Exchange Rates Fall as OBR Downgrades UK Growth Forecast

The Pound similarly fell today, limited by the recent growth forecast downgrade from the OBR.

Britain’s growth prospects are far weaker than previously anticipated, according to the OBR, with stalling productivity, high inflation and weak wage growth providing a gloomy backdrop for the UK’s economy.

The independent economic forecaster downgraded its growth predictions from 2% this year to 1.5%, with a drop to 1.4% forecast in 2018 and a drop to 1.2% expected in 2019, an event that would mark the weakest rate the UK has seen since 2009.

Robert Chote, Chairman of the OBR has asserted that the bleak outlook is predominantly due to poor productivity, which has in turn fallen as a result of businesses becoming increasingly hesitant to invest in new technology and appropriately trained staff (things that would generally increase productivity).

Chote stated:

‘The UK economy has slowed this year as households’ real incomes and spending have been squeezed by higher inflation. The persistence of weak productivity growth does not bode well for the UK’s growth potential in the years ahead,” the OBR said, in a gloomy assessment of Britain’s economic prospects. “We have lowered our real GDP forecast in every year’.

This view hurt the Pound and kept GBP USD within a narrow band of trade.

GBP USD Forecast: US Markit PMI Readings and Brexit Progress Ahead

The Pound US Dollar exchange rate could become increasingly volatile tomorrow depending on the result of a run of US Markit PMI readings.

The manufacturing reading is currently forecast to rise to 55 in November, (up from 54.6), whilst the services reading is expected to hit 55.4, only slightly up from 55.3.

If these releases largely deviate from the forecasts then the GBP USD exchange rate could break out of its narrow band.

Markets will also be keen to see if UK Prime Minister Theresa May’s talk with Donald Tusk, President of the European Council is fruitful, with the divorce bill reported to be one of the primary talking points.

If London’s offer of £40bn is shot down then the impasse will likely continue for longer, an eventuality that will hurt demand for the Pound.

If, however, progress is made, then GBP USD could swing into the Pound’s favour once again.

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TAGS: Daily Currency Updates Dollar Pound Forecasts