Pound US Dollar Exchange Rate News: GBP/USD Traded Erratically as UK Narrowly Avoids Recession

February 10, 2023 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Traded Erratically as UK Narrowly Avoids Recession

Pound (GBP) Undermined by Concerning Economic Outlook

The Pound (GBP) traded erratically on Friday morning after GDP growth data confirmed market expectations and stagnated in the fourth quarter. Despite avoiding a recession, which lent some support to Sterling, the fragility of the UK economy remains.

The Office for National Statistics (ONS) released GDP growth data on Friday morning which met market forecasts. An expected stagnation in QoQ growth boosted GBP investors as it signalled a narrow dodging of a recession. However, monthly growth data showed a bigger-than-expected drop as the economy contracted by 0.5%, the first decline in three months.

Darren Morgan, Director of Economic Statistics at ONS, commented on the latest figures:

‘In December public services were hit by fewer operations and GP visits, partly due to the impact of strikes, as well as notably lower school attendance. Meanwhile, the break in Premier League football for the World Cup and postal strikes also caused a slowdown.’

But keeping gains limited is the concerning undertones to the GDP data. Despite narrowly avoiding a technical recession of two consecutive quarterly contractions, the UK economy remains in a precarious position. Chancellor Jeremy Hunt was quick to defend the situation by claiming the economy is more resilient than feared. James Smith of the Resolution Foundation, however, was more concerned with the coming year:

‘The longer-term picture is more worrying, with the UK economy yet to return to its pre-pandemic size having suffered a prolonged period of weak growth since the financial crisis.’

US Dollar (USD) Undermined by Fed Rate Hike Strategy

Meanwhile, the US Dollar (USD) continued its struggles as a lack of economic data left it open to an improving market sentiment.

Despite an overall hawkish stance from the Federal Reserve, investors are still debating how the central bank will maintain its monetary policy. With fears of a pause on the horizon, or even cuts, the ‘Greenback’ struggled to find much demand.

With global market sentiment improving, safe-haven currencies such as the US Dollar could struggle. As inflation pressures ease, tempering recession fears, combined with the continuing recovery in China after its reopening, the ‘Greenback’ could stutter further.

GBP/USD Exchange Rate Forecast: Improving Michigan Consumer Sentiment to Spur the Greenback?

Looking ahead, the Pound US Dollar exchange rate could see further fluctuations with the release of consumer sentiment data. With an expected modest improvement, sentiment would remain the highest since April 2022 on an improving mood, which could see the US Dollar climb higher.

Meanwhile, a lack of economic data to close the week will mean Sterling will have to rely on market sentiment and domestic issues for movement. As investors will continue to pore over economic growth data, the underlying concern that the UK economy will continue to stagnate through 2023, Sterling could dip on a dire economic outlook.

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TAGS: Pound Dollar Forecasts