Concerns about the US economic outlook, combined with US-China trade war fears and UK General Election hopes, are making it easier for the British Pound to US Dollar (GBP/USD) exchange rate to hold its best levels this week. The Pound outlook is sensitive though, and could see significant shifts depending on how Thursday’s election unfolds. Meanwhile, US Dollar investors are eagerly awaiting Federal Reserve news due in the coming days.
Due largely to UK election hopes, GBP/USD has seen strong gains in recent weeks. Last week saw GBP/USD sustain over two cents of gains, climbing from the level of 1.2927 to 1.3136.
Since markets opened this week, GBP/USD has been holding its ground and has even tested even greater highs. This morning, GBP/USD touched on a high of 1.3184 – the pair’s best level since March.
GBP Exchange Rates Remain Strong despite Stagnant UK Economic Growth
For most of the past week, investors have been piling into the Pound amid rising bets that the ruling Conservative Party will be able to win a comfortable majority in the upcoming UK General Election.
Bets of a Conservative majority have led to bets that a no-deal Brexit will be avoided, and this is keeping the Pound appealing.
As a result of election bets supporting Sterling, investors have been able to largely brush over the latest UK ecostats, even though they fell short of forecasts.
Britain’s October industrial production and Gross Domestic Product (GDP) growth rate stats fell short of expectations. Growth, in particular, disappointed with a stagnant 0.0% month-on-month.
Analysts expressed concern about the health of Britain’s economy as months of Brexit uncertainty weigh and keep a lid on economic activity. According to Paul Dales from Capital Economics:
‘The 0.2% m/m rise in services output shows that the largest part of the economy hasn’t got much momentum and the 0.2% m/m gain in manufacturing output may not be repeated given the weak global backdrop.
What’s more, this is despite the first real evidence that stockbuilding ahead of the old 31st October Brexit deadline may have provided some support to the economy. Indeed, most of the sharp leap in the international trade deficit, from £1.9bn in September to £5.2bn in October, was due to businesses buying more components from overseas as imports rose by a strong 6.2% m/m’
USD Exchange Rates Remain Unappealing amid US-China Trade Uncertainty
The US Dollar’s weaker performance has persisted this week, following last week’s worsening US-China trade tensions and concerning US manufacturing data.
While the US Dollar’s movement steadied slightly today, the currency was unable to sustain much of a recovery amid concerns over yet more weak US data.
Today’s US data continued to paint an uncertain picture for the US economic outlook, with US productivity and labour costs coming in below expectations.
This is keeping speculation about the possibility of a more dovish Federal Reserve afloat as well.
On top of concerns about the US economy, the US Dollar was further weighed by speculation that the US-China trade war could still escalate in the coming week.
While there is speculation that the US and China are working to agree to delay an incoming set of major tariffs, markets are still anxious about the possibility of the trade war escalating if no delay is agreed.
As US economic and trade concerns persist, the US Dollar has been unable to register a recovery against the Pound.
GBP/USD Exchange Rate Forecast: Key US Data and Fed Decision Ahead of UK Election
The Pound’s potential for movement may be limited over the coming days, as investors eagerly await Thursday’s UK General Election and the results which could come in towards the end of the week.
As a result, the Pound to US Dollar exchange rate is likely to be driven by US news and US Dollar movement until Thursday.
Britain’s economic calendar will be quiet tomorrow, but influential US data as well as the Federal Reserve’s December policy decision will come in.
US Consumer Price Index (CPI) data could cause Fed interest rate cut speculation to flare up if it unexpectedly slows, but the US Dollar’s movement will focus around the Fed decision.
If the Fed avoids a more dovish tone despite the recent weakness in US data, the US Dollar could see a rebound from its recent weakness.
However, Pound to US Dollar exchange rate is still likely towards the end of the week amid UK election and potential US-China trade developments.
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