Pound US Dollar (GBP/USD) Exchange Rate Slips as UK Outlook Worsens

January 23, 2023 - Written by John Cameron

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Slips as UK Outlook Worsens

Pound US Dollar (GBP/USD) Exchange Rate Drops amid Lack of UK Data

The Pound US Dollar (GBP/USD) exchange rate slipped on Monday. The pairing was pulled lower by the UK’s downbeat outlook as well as a lack of data for the Pound (GBP).

Losses for GBP/USD were limited by a more cautious stance from the Federal Reserve, however.

At time of writing the GBP/USD exchange rate was at around $1.2357, which was down roughly 0.3% from that morning’s opening figures.

Pound (GBP) Falls amid Downbeat Outlook for UK

The Pound (GBP) slipped on Monday amid a lack of significant data for Sterling. The UK’s downbeat outlook continued to weigh on GBP over the course of the day.

Comments from the head of the Confederation of British Industry (CBI) added to the gloomy assessment for the UK’s economy. Speaking on Monday, CBI director-general Tony Danker outlined how the UK was falling behind the rest of the world when it came to green investment and growth.

Sterling found some support from persistent bets on Bank of England (BoE), however. Markets continued to price in a 50bps from the central bank amid inflationary pressures in the UK’s labour market.

US Dollar (USD) Pushed Higher Against GBP by Bond Yields, Falls Elsewhere amid Reduced Fed Hike Bets

The US Dollar (USD) firmed against many of its peers on Monday. A recovery in US Treasury bond yields bolstered USD against GBP.

The safe-haven ‘Greenback’ struggled elsewhere however, as a risk-on market mood pulled it lower against some of its rivals.

Expectations of a slower pace of policy tightening from the Federal Reserve contributed to USD’s losses on Monday. Recent dovish comments from Fed policymakers pointed to a less aggressive pace of policy tightening at future meetings.

Speaking on Friday, Federal Open Market Committee (FOMC) member Christopher Waller said:

‘Based on the data in hand at this moment, there appears to be little turbulence ahead, so I currently favour a 25-basis point increase at the FOMC’s next meeting at the end of this month.

GBP/USD Exchange Rate Forecast: Will UK PMIs Add to Recession Fears and Pull Sterling Lower?

Looking ahead for the Pound, the latest PMIs for the UK’s private sectors could weigh on Sterling if they print as forecast on Tuesday. The PMIs are expected to remain in negative territory for the country’s manufacturing and services sectors.

Also on Tuesday, multiple data releases by the Confederation of British Industry (CBI) could see further losses for Sterling. First quarter business optimism is expected to slip further. Additionally, industrial trends orders are expected to decline further which could add to the downbeat outlook for the sector.

On Thursday, the CBI’s distributive trades figures are forecast to slump dramatically in January from December’s positive reading. After last week’s poor retail sales data, the figures could add to fears of a deep UK recession.

For the US Dollar, the currency could also struggle amid poor PMI figures this week. Tuesday’s data is forecast to slip across all private sectors. If the figures print as forecast, it could add to fears of a US downturn and prompt losses in USD.

Thursday’s GDP growth data may also fuel speculation of an imminent recession in the US. Whilst fourth quarter growth is expected to have climbed, the rate is set to slow to 2.5% from 3.2% in the third quarter. The data could weigh on the US Dollar.

On the other hand, an expected drastic recovery in December’s durable goods orders could help limit USD’s losses if the figures print as forecast. The latest jobless claims figures may also lend support to the US Dollar on Thursday if they remain close to previous lows.

On Friday, investors be keenly awaiting the latest reading of the core PCE price index. The data could prompt increased Fed rate hike bets if it ticks higher as forecast. This could in turn bolster the US Dollar.

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TAGS: Pound Dollar Forecasts