Pound US Dollar Exchange Rate News: GBP/USD Firmed as UK Economy Returns to Growth

June 14, 2023 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Firmed as UK Economy Returns to Growth

Pound (GBP) Buoyed by Welcome Return to Growth

The Pound (GBP) saw modest success against many of its rivals on Wednesday morning in the wake of market expectations of a 0.2% increase. Coming after a 0.3% contraction in March, the UK economy rebounded to boost investors’ spirits.

The biggest contributor to the increase was marked growth in the service sector, as the film and retail industries helped boost a 0.3% rise. However, construction output and industrial production dragged the figure down. Jack Sirett, partner at Ebury, commented on how a return to growth has boosted the Pound:

‘Persistent inflation and higher interest rates continue to constrain the UK economy, yet April marked a welcome return to growth. The likelihood of recession continues to fade which should give the pound a boost.

‘The GDP print follows hot on the heels of data showing wages rising at their fastest rate in 20 years outside of the pandemic. It builds into the expectation that not only will the Bank of England be forced into yet another hike next week, but that the peak base rate could reach well above 5%.’

US Dollar (USD) Undermined by Pause Prospect from the Fed

Meanwhile, the US Dollar (USD) remained fairly quiet on Wednesday ahead of the interest rate decision from the Federal Reserve.

Tuesday saw inflation in the US fall further than expected to 4% from 4.9%. Representing the lowest since March 2021 amid a drastic decline in energy prices. Core inflation, excluding volatile prices, slowed to 5.3%, which was the lowest figure since November 2021. Both figures supported the notion that the Fed could pause their aggressive rate hiking cycle.

However, keeping the ‘Greenback’ moderately supported is the fact that inflation is proving to be stickier than expected, and the prospect for a swift return to hiking could keep the US Dollar propped up. Kathy Bostjancic, Chief Economist at Nationwide in New York, said of the situation:

‘The moderate slowing provides the Fed room to pause its rate hikes this week. However, if economic data continues to surprise to the upside and inflation remains sticky, the door is open for another rate hike in the coming months, as soon as July.’

GBP/USD Exchange Rate Forecast: Fed Pause to Weigh on the US Dollar?

Looking ahead, the Pound US Dollar exchange rate could see further movement with the latest interest rate decision from the Fed. Despite strong hints from the central bank that it could pause its rate hikes, data since the last decision has been mixed. But markets have priced a less-than-30% chance of another hike. Even if the Fed were to pause, their forward guidance would be heavily scrutinised. If hints of a return to hiking would materialise, the US Dollar could climb.

Meanwhile, a speech from BoE Deputy Governor Jonathan Cunliffe could provide some modest support for the Pound if a hawkish tone is struck in the wake of the UK returning to economic growth.

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TAGS: Pound Dollar Forecasts