Pound Rises in Value as UK Avoids Recession
You’d think the GBP vs USD exchange rate would have had the Monday blues after Gross Domestic Product (GDP) figures revealed that Britain’s economy grew at its slowest annual pace in almost a decade. Importantly for the pair, however, the data also showed that the economy dodged recession in the third quarter of 2019, despite the best efforts of the global slowdown and Brexit uncertainty to trip it up. The pound subsequently firmed against a weaker dollar, propelling the GBP to USD rate back above the 1.28 level – closer to 1.29.
In a statement accompanying the data release, the Office for National Statistics explained that: “GDP grew steadily in the third quarter, mainly thanks to a strong July. Services again led the way with construction also performing well. Manufacturing failed to grow as falls in many industries were offset by car production bouncing back following April shutdowns”.
Pound Benefits from Brexit Party Decision
The pound was given further support by Nigel Farage yesterday, who announced that his Brexit Party won’t be standing in seats won by the Conservatives in the 2017 election – this amounts to over 300 candidates. The move – designed to make it easier for the Conservative Party to secure a majority in the election – raised hopes that Boris Johnson can pass his Brexit withdrawal deal next year, which would represent a welcome outcome for the pound.
According to a poll by Reuters, a Conservative majority would allow the pound to rise 3%. And there’s every chance of this becoming reality if the bookies – who say a Tory majority is the odds-on favourite outcome – and recent opinion polls are to be trusted, given their recent track on such matters.
The publication of the latest consumer price index might shed more light on the health of the UK economy tomorrow. If, as forecast, the figures show that domestic inflation slowed to a near three-year low in October, the Bank of England might come under pressure to implement a rate cut in early 2020.
The dollar’s fortunes will be largely dictated by Jerome Powell’s testimony in front of the Joint Economic Committee tomorrow. The Federal Reserve Chair will be quizzed about the bank’s monetary policy and the state of the US economy, at a time when trade tensions and a slowing global economy are providing plenty of food for thought. The dollar could stumble if Mr Powell strikes a cautious tone, opening the door to further rate cuts.
To discuss how these factors are likely to continue impacting cable exchange rates, get in touch with a member of our team on +44 (0)1494 360 899 or use the form below.