Pound US Dollar (GBP/USD) Exchange Rate Rallies as US GDP Misses its Mark

May 30, 2018 – Written by John Cameron

OECD Upgrades UK Growth Forecasts – Pound US Dollar (GBP/USD) Exchange Rate Climbs

The Pound climbed against the US Dollar (GBP/USD) on Wednesday, bolstered by a downbeat revision in US GDP and news that the influential Organisation for Economic Cooperation and Development (OECD) has upgraded their growth forecast for the UK.

According to the OECD, the British economy will expand by 1.4% this year, up from the November forecast of 1.2%.

Growth in 2019 was also revised higher, up from 1.1% to 1.3%.

The group also warned, however, that the Government must be ready to ease up on austerity measures if growth massively weakens in the run-up to the UK’s withdrawal from the EU.

On a similar note; despite GBP/USD rallying today investors continue to remain concerned regarding the apparent lack of progress in Brexit negotiations, with the looming EU summit at the end of June and the ongoing issue of the Irish border still weighing on demand.

In this regard, Sterling’s lead today is predominantly due to the ‘Greenback’s’ own sudden weakness, with the latest US data prints coming up short.

US GDP Revised Lower – US Dollar (USD) Exchange Rates Tumble

The US Dollar’s (USD) rally ended abruptly on Wednesday as investors reacted to a below-forecast downward revision in US Q1 GDP.

According to the US Commerce Department, US GDP (the dollar value of all goods and services produced in the US) rose by 2.2% on a seasonally adjusted annual rate, down from the previous month’s estimate of 2.3% and the matching forecast.
This slowdown has been attributed to downward revisions in inventory investment and general consumer spending – though tax cuts are expected to boost activity this year.

There are also signs that GDP growth is gathering momentum early in the second quarter, with consumer spending, business investment on equipment and industrial production posting a strong performance in April.

Nonetheless, this optimism did little to support the struggling ‘Greenback’, with investors instead choosing to favour other currencies, like the Euro (EUR) and the Pound.

Pound US Dollar (GBP/USD) Exchange Rate Forecast: US Labour Market Figures in the Spotlight

The Pound might have caught a break against the US Dollar (GBP/USD) on Wednesday, but its rally might prove short-lived in light of Friday’s US labour market statistics.

Investors currently expect a whopping 190k new non-farm payrolls to be added in May, whilst the US unemployment rate is expected to hold at historic lows of 3.9%.

Beyond this, Thursday’s US PCE readings – the US Fed’s preferred measure of inflation – could make or break hopes for a rate rise in June, with the rise or fall in inflation liable to push the US Fed away from its gradual path of rate rises, or keep them firmly on course.

Investors will also be keeping an eye on the UK’s GfK consumer confidence print, due later tonight, though this will largely play second-fiddle to this week’s high-importance run of US and Eurozone ecostats.

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TAGS: Pound Dollar Forecasts