GBP to USD Forecast: Pound Encouraged by Signs of Post-Election Economic Rebound

GBP to USD Rate Declines for Four Consecutive Days

Growth in gross domestic product (GDP) flatlined between October and the end of December – slowing from 0.5% in the third quarter – according to figures released by the Office for National Statistics (ONS). A slump in consumer spending over the Christmas shopping period, and a significant reduction in manufacturing output, meant the British economy failed to grow in the final three months of 2019. All of which was set to the backdrop of Brexit-fuelled political uncertainty and the snap general election.

The ONS data also revealed that annual growth only increased slightly to 1.4%, just above the 1.3% growth rate recorded in 2018. The pound to US dollar rate chose to ignore one of the weakest annual growth rates since the financial crisis and the fourth-quarter slowdown. Instead focusing on tentative signs of an early post-election economic rebound; a sanguine approach that helped it climb back towards the 1.30 level.

According to the ONS, the economy grew by 0.3% in December from November, reflecting a recovery in business confidence in the wake of Boris Johnson’s unexpectedly decisive victory. While influential services surveys indicated that the cornerstone sector of the UK economy also rebounded in January, posting its strongest upturn in activity in over one and a half years.

Powell Comments Encourage Dollar

The US dollar was relatively subdued ahead of Federal Reserve Chair Jerome Powell’s testimony in front of the House Financial Services Committee yesterday. When he eventually took to the stand, the dollar to comfort in his belief that the Fed remains on hold in its interest rate stance and the economy appears durable. He also said the central bank is monitoring developments regarding the coronavirus outbreak and its impact on global and domestic growth – an international crisis that has increased demand for the safe-haven dollar.

Looking Ahead

The GBP vs USD rate could feel the weight of the US Consumer Price Index tomorrow. If January’s inflation level rises in line with forecasts, the pair could be dragged down by an upswing of support for the dollar. Before then, however, Jerome Powell will be spending a second day testifying to Congress, this time in front of the Senate Banking Committee.

HM Treasury makes the first of its biannual statements to Parliament today. The Autumn Forecast Statement provides an updated economic outlook and previews the government’s budget for the coming year. The pound will be hoping for an upbeat outlook.


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