Pound US Dollar Exchange Rate News: GBP/USD Fluctuated as UK Economy Contracted

Modified: Friday, 12 May 2023 12:05 BST - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Fluctuated as UK Economy Contracted

Pound (GBP) Undermined by Shaky Economic Growth

The Pound (GBP) failed to find a clear direction on Friday in the wake of mixed GDP growth data. A surprise monthly contraction offset a mild quarterly expansion as the UK economy continues to battle the cost-of-living crisis.

The Office for National Statistics (ONS) reported that the UK economy contracted in the month of March as industrial action played a big part in underperforming GDP growth. Against expectations of zero growth, a significant fall in the service sector weighed heavily as it fell by 0.5%. A 1.4% decline in wholesale and retail trade also dragged the reading down. Darren Morgan, Chief Executive for ONS, said of the data:

‘The fall in March was driven by widespread decreases across the services sector. Despite the launch of new number plates, cars sales were low by historic standards – continuing the trend seen since the start of the pandemic – with warehousing, distribution and retail also having a poor month.’

However, limiting any significant losses for Sterling was the positive news that the UK economy expanded 0.1% in the first quarter of 2023. Thanks in part to a strong January, the downturn in March didn’t prevent the economy from growing. Matching the Q4 2022 expansion, the UK avoided a winter recession. Despite this, the economy remains the weakest performer out of the G7, and the UK is still 0.5% smaller than before the pandemic.

Chancellor Jeremy Hunt was buoyed by the latest GDP readings, and shrugged off the poor monthly figures, and said:

‘Good news the economy is growing, but (we) need to stay focus on tax, labour supply and productivity. We will keep going until the job is done and we have the high wage, high growth economy we need.’

US Dollar (USD) Under Pressure from Improving Market Mood

Meanwhile, the US Dollar (USD) also struggled for demand to close the week as global market sentiment appeared to be on the up, denting the safe-haven ‘Greenback’. Dovish comments from Federal Reserve policymakers could also be sapping demand.

However, a hawkish turn from Fed policymaker Michelle Bowman could be keeping the US Dollar afloat. Talking ahead of an event at the European Central Bank (ECB), Bowman said the Fed may need to continue tightening if inflation remains high. She commented:

‘Should inflation remain high, and the labour market remain tight, additional monetary policy tightening will likely be appropriate to attain a sufficiently restrictive stance of monetary policy to lower inflation over time.’

GBP/USD Exchange Rate Forecast: BoE Speech to Boost Sterling?

Looking ahead, the Pound US Dollar exchange rate could see further movement with a speech from BoE Chief Economist Huw Pill. Any further hints of a continuation of the tightening cycle could buoy the Pound.

As for the ‘Greenback’, the latest consumer sentiment survey could provide some impetus before the weekend. With morale expected to have fallen across the US, the ‘Greenback’ could sour.

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TAGS: Pound Dollar Forecasts