Rise in UK Productivity Levels Inspires Minor Pound to US Dollar Exchange Rate Advance

April 6, 2018 - Written by Toni Johnson

STORY LINK Rise in UK Productivity Levels Inspires Minor Pound to US Dollar Exchange Rate Advance

On Thursday’s trading session, the Pound to US Dollar exchange rate saw an overall decline, opening in the region of 1.4088 but closing down lower around 1.4008.

Pound to US Dollar Exchange Rate Improves after UK Productivity Reported Higher

The Office for National Statistics (ONS) has contributed to today’s GBP/USD exchange rate rise, by reporting an increase in UK productivity levels.

The UK statistics agency has posted data showing 0.7% growth in UK productivity levels during Q4 2017, with analysts commenting on the data by saying;

‘An increase of 0.7% is slightly higher than the average quarterly rate of productivity growth in the decade prior to the 2008 economic downturn, since when UK productivity growth has been subdued.

This sustained stagnation, often referred to as the “productivity puzzle”, contrasts with patterns following previous UK economic downturns when productivity initially fell, but subsequently recovered to the previous trend rate of growth’.

Not everyone has been enthused by this minor pickup in growth, but for now at least the Pound has appreciated on the news.

Major Escalation in US-China Trade War Worsens US Dollar to Pound Exchange Rate

The US Dollar has fallen against the Pound and traded in a narrow range against other peers today, following a significant step up in the risk of a real US-China trading conflict.

President Donald Trump has threatened to impose new tariffs in the region of $100bn against Chinese imports, following a prior Chinese warning that it would charge $50bn worth of US imports to China.

While there are still hopes that the situation could be resolved amicably behind the scenes, for the most part this news has greatly concerned traders and weakened the USD.

Pound to US Dollar Exchange Rate Forecast: Will Chinese Response to Trump’s Tariffs Push GBP/USD Higher?

Looking ahead, the prospect of a full-blown trade war between the United States and China is likely to dominate the coming week’s GBP/USD exchange rate movement.

If it seems like China will respond in kind to the $100bn worth of tariffs threatened by Donald Trump, then the US Dollar could drop sharply.

Illustrating the risks associated with the current situation, Capital Economics Senior China Economist Julian Evans-Pritchard has said;

’These higher stakes increase the urgency of reaching an agreement with the US but also risk a more damaging outcome if talks break down’.

More concretely, the Pound to US Dollar exchange rate could drop in the coming week when UK trade balance data is released on 11th April.

The measure of UK imports and exports is predicted to have grown from the existing deficit reading of -£3.074bn to £-3.4bn in February, which could damage GBP.

There is a slim chance of a GBP recovery on the coming Thursday, but this is largely dependent on there being higher industrial, manufacturing and construction output.

US Dollar movement could occur before the weekend, when this afternoon’s high-impact non-farm payrolls and unemployment rate data is released.

Current estimates are for 193k new jobs to have been added to the economy in March, compared to 3.3k in February.

More supportively, the jobless rate in March is expected to have fallen from 4.1% to 4%, which could raise hopes for an imminent Federal Reserve interest rate hike.

The payrolls figure frequently misses or exceeds expectations, so it is not out of the question that a USD rally could take place if more employment is reported than first thought.

Away from the trade war concerns, the US Dollar could be supported next week if it is reported that inflation rates have risen in March.

As with a lower jobless rate, such a result would raise hopes that the Fed could commit to an imminent interest rate hike due to economic strengthening.

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TAGS: Pound Dollar Forecasts