Pound US Dollar (GBP/USD) Exchange Rate Bolstered by Forecasts of UK Growth

March 30, 2023 - Written by John Cameron

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Bolstered by Forecasts of UK Growth

Pound US Dollar (GBP/USD) Exchange Rate Lifted by Upbeat Forecasts for UK Economy

The Pound US Dollar (GBP/USD) exchange rate rose on Thursday. The pairing hovered around eight-week highs over the course of the day.

The exchange rate was boosted by positive forecasts for the UK economy, as well as hints of further rate hikes from the Bank of England (BoE). A risk-on mood also prompted gains for GBP/USD.

At time of writing the GBP/USD exchange rate was at around $1.2344, which was up roughly 0.3% from that morning’s opening figures.

Pound (GBP) Firms amid ‘Signs of Green Shoots’ in UK Economy

The Pound (GBP) ticked higher on Thursday. Sterling was pushed higher against its safer rivals due to a risk-on market mood.

Positive signs from the UK’s private sectors supported gains for GBP today. The Confederation of British Industry’s (CBI) latest growth report stated that the UK economy as showing ‘signs of green shoots’. The report included projections from the CBI that the UK will see 5% growth in the next quarter.

However, the report was less optimistic in other areas. The CBI report outlined a 4% contraction in the UK’s private sectors in the three months up to March. The downturn represents the eight consecutive month of decline.

Speaking on the report, CBI lead economist Alpesh Paleja said:

‘It’s encouraging that the private sector is expected to return to growth in the months ahead, chiming with a range of other data indicating some resilience in economic activity. But let’s be clear – at best, this illustrates an economy skirting stagnation-like conditions rather than delivering the strong, sustainable growth we need.’

Bets on further interest rate hikes from the BoE also limited any losses for GBP on Thursday. The shift in sentiment came after hawkish comments from BoE Governor Andrew Bailey earlier in the week.

US Dollar (USD) sees Fresh Selling amid Return of Risk Appetite

The US Dollar (USD) came under pressure on Thursday. A return of global risk appetite weighed on the safe-haven ‘Greenback’. Improving confidence in the global banking sector prompted the upbeat market mood.

USD also saw losses of the back of persistent bets on a slowdown in interest rate hikes from the Fed. Following the central bank’s last interest rate decision, markets have been pricing in possible rate cut from the Fed in 2023.

However, some experts believe that markets are jumping the gun in regards to potential interest rate cuts from the Fed.

In a weekly note to clients, investment company BlackRock said:

‘We don’t see rate cuts this year – that’s the old playbook when central banks would rush to rescue the economy as recession hit. Now they’re causing the recession to fight sticky inflation and that makes rate cuts unlikely, in our view. We think the Fed could only deliver the rate cuts priced in by markets if a more serious credit crunch took hold.’

These mixed bets likely underpinned the US Dollar on Thursday.

GBP/USD Exchange Rate Forecast: Will UK Dodge 2022 Recession?

The Pound could improve its standing on Friday if GDP figures confirm a stagnation in the UK economy. The data could add to expectations that the UK narrowly avoided a technical recession in 2022.

Sterling could also find support from bets on additional interest rate hikes from the BoE.

The latest jobless claims figures could inspire positive movement in the US Dollar later on Thursday. Claims for the week ending March 25 are expected to remain close to previous lows. Investors may take the data as an indicator of a still-tight labour market.

USD investors will be keenly awaiting February’s reading of the core PCE price index on Friday. The Fed’s preferred measure of inflation is forecast to have slipped in February. If the data prints as forecast, it could pull USD lower.

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TAGS: Pound Dollar Forecasts