2018 GBP/USD Exchange Rate Outlook: UK Wages and Chinese Economy in Focus

December 27, 2017 - Written by Tim Boyer

STORY LINK 2018 GBP/USD Exchange Rate Outlook: UK Wages and Chinese Economy in Focus

On the week leading up to Christmas, the Pound to US Dollar exchange rate rose from an opening level of 1.3324 on Monday to close higher at 1.3360 on Friday.

This advance came on a mixed week for UK data, which included falling consumer confidence and an expanding borrowing deficit.

The headline news came on 22nd December, when UK GDP and business investment stats for the third quarter were announced.

GDP growth proved better than expected, with quarterly growth rising as forecast and the yearly reading not dropping by as much as predicted.

Additional support was provided by finalised business investment readings, which showed investment levels remaining relatively high despite expectations for drops.

In the US, traders were mainly focused on the weekend’s news that key nationwide tax reforms were effectively official, following a slim voting victory for the Republican Party.

Regarding domestic data, US home sales were reported up in November, while GDP growth accelerated slightly in the third quarter.

In positive economic news, US personal spending rose from 0.2% to 0.6%, while durable goods orders increased from -0.4% to 1.3%.

GBP/USD Exchange Rate Rises despite Flat Income Warnings for 2018

The Pound has made a minor advance against the US Dollar today, although neither currency has been in particularly high demand on a quiet day of trading.

In UK economic news, there have been some concerning forecasts made for economic activity in 2018.

The Resolution Foundation, a think-tank that specialises in forecasting UK wage growth, has estimated that UK real incomes will be virtually flat in 2018.

Although this would be a definite improvement on the situation of declining real incomes at present, it would also not cause a sudden boost in UK consumer activity.

Flat real incomes won’t be enough to spur a surge in spending, as Resolution Foundation Director Torsten Bell has emphasised;

‘The good news is that things will get better next year.

The bad news is we may only go from backwards to standing still, with prospects for a meaningful pay recovery still out of sight.

While the public have famously defied recent gloomy economic predictions and continued to spend, public expectations do appear to be moving in line with experts’ pessimistic predictions.

Over half expect no pay rise next year and households are just as likely to expect their financial situation to get worse as improve next year.

This pessimism is strongest among those on lower incomes, unsurprisingly given big benefit cuts set to take place’.

USD Exchange Rate Slumps as Economists Predict China Eclipse of US Economy

The US Dollar has slipped against the Pound today, while in other pairings the USD has either declined or made minimal gains.

This mixed movement comes on the tail of worrying forecasts for the US economy in the future, particularly with regard to its world standing.

There are expectations that China could eclipse the US with its global importance, based on higher levels of Chinese production, manufacturing and construction, coupled with a rising population.

This goes against US President Donald Trump’s ambitions to make the US star burn brightest and plays into his long-running on-off rivalry with Chinese President Xi Jinping.

Setting the two nations up for confrontation in 2018, Donald Trump has recently said to Asia-Pacific Economic Cooperation members;

‘We are not going to let the United States be taken advantage of anymore.

I am always going to put America first, the same way I expect all of you in this room to put your countries first’.

IS GBP/USD Exchange Rate Rise Incoming on PMI Stats?

The current week is effectively spent when it comes to UK economic data, so the Pound could next be influenced by a manufacturing PMI reading on 2nd January.

This figure, looking at economic activity in December, is tipped to drop from 58.2 points to 58, which would indicate a slight dip in manufacturing activity.

Over in the US, the next notable news will be jobless claim stats out on Thursday afternoon.

Estimates are for a decline in initial jobless claims, as well as a potentially USD-supporting drop in jobless claims.

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TAGS: Pound Dollar Forecasts