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GBP USD Exchange Rate Fluctuates as UK Trade Deficit Widens

January 10, 2018 - Written by Frank Davies

UK Trade Deficit Widens, Causes Volatility for GBP USD Exchange Rates

The Pound US Dollar (GBP/USD) fluctuated wildly on Wednesday as markets digested a run of mixed UK ecostats as well as news that China is considering trimming its purchasing of American government debt.

On the data front; the UK’s trade deficit widened quite unexpectedly from £-2.270B to £-2.804B month-on-month in November - marking the largest trade deficit since June.

This was predominantly caused by a notable increase in the importation of fuels from non-EU countries.

In addition, the UK’s NIESR GDP estimate printed at 0.6%, rather than the 0.5% expected in the three months to December – a strong indicator that the UK’s economy remains surprisingly resilient moving into 2018.
Conversely, industrial production in the UK accelerated from 0.2% to 0.4% in November, whilst manufacturing production accelerated at a similar pace.

Combined, this news eventually laid GBP USD relatively flat, with any leads quickly proving short-lived.

US Dollar (USD) Exchange Rates Flounder on News that China Might Halt Bond Purchase

The US Dollar (USD) fell against a basket of currencies on Wednesday on reports that China is going to slow, or indeed halt, its US treasury purchases.

Chinese officials have recommended changes to the purchasing of US government bonds after reviewing China’s foreign-exchange holdings, asserting that China no longer sees said treasuries as an attractive option.
‘If the reports turn out to be true and China no longer sees Treasures as an attractive option, the repercussions could be significant as the country is one of the biggest holders of US debt’.

On the data front, US import prices recorded their smallest increase in five months in December, with underlying imported price pressures proving muted due to declining costs in consumer goods.

Nonetheless, economists are optimistic that the US Dollar’s recent depreciation will eventually assist in lifting inflation by making goods more attractive for foreign buyers.

GBP USD Exchange Rate Forecast: US Jobless Claims and Consumer Prices Ahead

The Pound US Dollar exchange rate is expected to become increasingly volatile towards the end of the week as markets react to the release of US jobless claim figures and Friday’s consumer price readings.

Inflation in the US is currently forecast to steady from 2.2% to 2.1% year-on-year in December, with the excluding food and energy reading expected to stay stagnant at 1.7%.

This would continue to hamper the monetary policy outlook for the US Federal Reserve, with markets currently split between remarks from various Fed policymakers, some insisting that less than three rate hikes are justified this year (such as Atlanta Fed President Raphael Bostic), and others that four are warranted (like San Franciso Fed President John Williams).

Nonetheless, a better than expected, positive reading in US consumer prices could put the Pound US Dollar (GBP USD) exchange rate under renewed pressure.

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