January 26, 2018 - Written by Minesh Chaudhari
STORY LINK GBP to USD Exchange Rate Resumes Advances on Strong UK Growth Report
Due to strong UK ecostats in recent sessions, as well as prevalent bearishness in US Dollar trade, the British Pound to US Dollar exchange rate has seen significant gains this week. Mixed signals from the US government have left US Dollar movement volatile.
After opening this week at the level of 1.3855, GBP/USD began to climb and as of Friday morning the pair was trending almost a whopping four cents higher, near the level of 1.4250. On Thursday the pair touched on a high of 1.4326, its best level since the 2016 Brexit vote.
GBP Sees Late Week Boost as UK Growth Projections Beat Expectations
The Pound continued a trend of strong performance against the US Dollar until the end of the week, thanks to the latest UK ecostats coming in higher than expected.
Friday saw the publication of Britain’s Q4 Gross Domestic Product (GDP) projections, which beat forecasts in both major prints.
UK growth was forecast to remain at 0.4% quarter-on-quarter but unexpectedly rose to 0.5%. The yearly figure was forecast to slow from 1.7% to 1.4% but only slipped to 1.5%.
As a result of the report, investors have become even more confident that Britain’s economy has been more resilient than expected during the first year of Brexit negotiations.
Analysts noted that Britain’s growth was being bolstered by the rising global growth outlook. According to Peter Dixon from Commerzbank.
‘The impact of Brexit-related uncertainty on the economy will be softened by the strength of the global economy – had the decision to leave taken place in (say) 2012, when global conditions were less favourable, the cost could have been even greater.
If the world economy is really picking up, the UK probably should be performing even stronger than it currently is, and highlights what the UK might lose out from in the event that it has to renegotiate all its trade deals once again.’
The Pound became more appealing as a result and rounded off the week with another climb against the US Dollar.
The growth report followed a strong domestic job market report on Wednesday. Sterling has also been supported in recent weeks by rising market hopes that the UK and EU would be able to negotiate a ‘soft Brexit’.
USD Becomes Volatile on Mixed Signals from White House Officials
It’s been another busy week for US Dollar trade as the currency has seen significant losses against major rivals like the Pound and Euro (EUR).
As well as finding little support in the latest US data, US Dollar investors have been selling the US currency due to an uncertain monetary policy outlook from the Federal Reserve.
But the biggest reason for the US Dollar’s selloff this week has likely been the attitude that US officials have taken towards the value of the currency.
Earlier in the week, US Treasury Secretary Stephen Mnuchin indicated at the World Economic Forum (WEF) in Davos that a weaker US Dollar was preferable. This stance was significant to analysts as it had been a long time since a US official had indicated they favoured a weaker USD.
Then on Thursday, the US President stated that he actually favoured a strong US Dollar and predicted that the currency would get ‘stronger and stronger’.
The contrasting comments left the US Dollar volatile on Friday and the currency’s chances of recovery were highly limited, especially against an increasingly strong Pound.
GBP/USD Forecast: US Growth Report in Focus
Before markets close this week, Pound to US Dollar (GBP/USD) investors are gearing up for the publication of the US Q4 Gross Domestic Product (GDP) projections, as well as an expected speech from the US President at the World Economic Forum (WEF) in Davos.
If the US President makes any surprising remarks on the US economy or the US Dollar itself, markets are likely to react.
As for the US growth report, it is forecast to have slipped slightly from 3.2% to 3% quarter-on-quarter. If the data beats expectations it could help the US Dollar to see a more solid recovery.
Failing that though, there is plenty of vital US data due in the coming week that could boost demand for the US Dollar if it impresses.
US Personal Consumption Expenditure (PCE) data will be published on Monday, followed by the Federal Reserve’s
January policy decision on Wednesday, ISM’s January PMIs on Thursday and the key January Non-Farm Payroll report on Friday.
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TAGS: Pound Dollar Forecasts