February 6, 2020 - Written by John Cameron
STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Falls as Niesr Predicts Javid’s Growth Targets ‘Unrealistic’
Pound Sterling US Dollar (GBP/USD) Exchange Rate Slides as Niesr Deems Growth Targets ‘Unrealistic’
The Pound Sterling US Dollar (GBP/USD) exchange rate remained largely flat, leaving the pairing trading at around $1.2957.
The Pound slumped against the Dollar today as Boris Johnson’s tough approach with the European Union continued to weigh on the currency.
Sterling sentiment suffered further after an economic think tank said British Chancellor Sajid Javid’s goal of doubling the pace of economic growth had a 20% chance of success.
According to the National Institute of Economic and Social Research (Niesr), hitting Javid’s 2.8% growth will be difficult as this has not been seen since 2006.
Principal economist at Niesr, Arno Hantzsche said:
‘The chancellor's aim of raising growth towards the post-war average - nearly 3% - is quite unrealistic.’
Risk Appetite Rises as China Announce US Tariff Cuts
The pairing slipped on Thursday after investors moved away from safe-haven currencies in favour of riskier assets.
Risk appetite rose further after China unexpectedly announce it would halve tariffs on US imports.
In a gesture of goodwill, Beijing said it hoped this would mean the global economy would be able to avoid a massive shock thanks to the Wuhan coronavirus.
Commenting on this, Robert Rennie, Westpac’s head of markets strategy noted:
‘Any news along these lines is good news.
‘It adds to the sense that there’s a number of policies both domestically and globally which could help to mitigate the impact of coronavirus.’
However, the slump in risk appetite did little to stop the safe-haven Dollar rising against the Pound.
GBP/USD Remains Near Six-Week Low
The US Dollar made gains at the end of Wednesday’s session after better-than-expected US jobs data.
Private sector payrolls jumped by 291,000 in the first month of 2020, which caused the pairing to fall by around 0.5%.
Following this, the pairing remained near the six-week low hit earlier in the week.
Further data on Wednesday showed the US service sector picked up at the start of the year, suggesting the economy will continue to expand.
The Federal Reserve’s preferred measure of PMI, the ISM non-manufacturing PMI jumped to a better-than-expected 55.5. The rebound followed a disappointing five months of the index remaining below 50.
Added to this, Markit’s US services PMI also showed activity picked up, and jumped to a 10-month high in January.
Commenting on the data, Chief Business Economist at IHS Markit, Chris Williamson noted:
‘The PMI data indicate that the US economy is ticking along at a steady but unspectacular annualized rate of growth of approximately 2% at the start of 2020. Growth has gained some momentum from the lows seen in the fall as the service sector enjoys stronger growth and manufacturing has also shown signs of the trade-led downturn easing. However, factory activity remains worryingly remains subdued, and optimism about future growth across the business community as a whole continues to run at one of the lowest levels seen over the past decade.’
Pound Dollar Outlook: US Non-Farm Payrolls in Focus
Looking ahead, the US nonfarm payrolls are likely to be in focus during Friday’s session.
The US Dollar (USD) is likely to rise against the Pound (GBP) if data reveals the number of jobs added to the US economy increases more than expected.
Meanwhile, the Pound could suffer further losses if tensions between the UK and European Union heat up.
If markets price in a lower chance of the UK reaching a trade deal with the EU before the end of 2020, the Pound US Dollar (GBP/USD) exchange rate will slide.
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