The Pound Sterling to US Dollar (GBP/USD) exchange rate slid to its lowest level in 15 months and is forecast to remain trading at that level for the remainder of the year as traders refrain from taking new positions before the start of 2015.
The UK currency was weakened on Tuesday after data released by the Office for National Statistics showed that economic growth was revised lower in the third quarter of the year.
Gross Domestic Product (GDP) was 2.6% higher than in the same period in 2013, but was down from a previous estimate of 3%.
Also weighing upon the currency was data showing that the UK’s current account deficit widened sharply from £24.3 billion to a record £27 billion.
‘While the quarterly results remain strong, the stark revision in annual growth confirms that the pace of recovery is slowing. The most concerning aspect of these figures is that the current account deficit has risen to an unsustainably high level due to a fall in net investment. Although the economy continues to grow, the recovery is not yet secure, and further efforts are needed to boost business investment and to help businesses export to foreign markets,’ said David Kern, chief economist at the British Chambers of Commerce.
The US Dollar meanwhile was supported by a report, which showed that the world’s largest economy expanded at its fastest pace in more than a decade, adding to speculation that the Federal Reserve will raise interest rates early next year.
Final third quarter US GDP rose by 5%, smashing expectations for a growth rate of 4.3% and was higher than the 3.9% recorded in the preceding quarter.
Trading volumes are expected to be light this week with many investors away for the Christmas holiday and New Year’s holiday.
The Pound to US Dollar (GBP/USD) exchange rate fell to a 15-month on Tuesday as data out of the UK disappointed and US data came in above economist forecasts.
Sterling fell after data showed that UK GDP expansion was revised lower in the third quarter and the nations current account deficit rose sharply.
According to the London based Office for National Statistics (ONS), the UK’s current account deficit widened to £27.0 billion in the third quarter, a jump from the £24.3 billion recorded in the second quarter, and whose figure was revised from a previously estimated deficit of £23.1 billion. Economists had expected the current account deficit to narrow to £21.9 billion in the last quarter.
A separate report also released by the ONS showed that U.K. gross domestic product rose 0.7% in the third quarter, down from a 0.8% growth rate in the three months to June.
Year-on-year, the U.K. economy grew at a rate of 3.6% in the last quarter, above expectations for growth of 3.0% and unchanged from the second quarter’s revised rate, which had initially been estimated at 3.0%.
The US Dollar strengthened after data U.S. showed that gross domestic product in the worlds largest economy rose by 5.0% in the third quarter, exceeding expectations for a growth rate of 4.3% and up from 3.9% in the three months to June.
Earlier the Pound Sterling to US Dollar (GBP/USD) exchange rate softened on Tuesday following the release of disappointing UK GDP and current account data and is forecast to weaken further on expectations that US GDP data will come in strongly.
Sterling fell against several major peers after data released by the Office for National Statistics (ONS) showed that economic growth in the third quarter of the year was finalised at 0.7% in the third quarter of 2014. The figure was in line with initial expectations but was a drop from the 0.9% growth figure seen in the second quarter.
On an annual basis, the ONS revised down the annual growth rate from the previous figure of 3% to 2.6%. The figure highlights that the UK’s economic recovery has not been as strong as expected and that headwinds being created by weakness the Eurozone are having a bigger negative impact. The UK is already experiencing the slowest recovery in decades.
Also released was third quarter current account data, which came in worse than forecast. According to the ONS, the nation’s current account deficit jumped to £27 billion, a much higher figure than the £23 billion expected by analysts. The figure also shows that the deficit widened from the £23.1 billion deficit recorded in the second quarter. The deficit is £4 billion more than expected and makes up 6% of the UK’s GDP.
The trade deficit component of the current account deficit came in at £9 billion, slightly better than £9.2 billion in April-June. That was due to a larger surplus on trade in services; however, the deficit in goods did widen.
Following the data, the Pound immediately dropped against the ‘Greenback’.
US GDP Data Forecast to Weaken GBP/USD Exchange Rate
The GBP/USD exchange is forecast to weaken further as the session progresses due to the release of US GDP data, which is expected to come in strongly.
If US GDP growth in the third quarter comes in better than expected and manages to exceed the second quarter’s growth rate of 4.6% it will represent the best period growth since 2006 when GDP expanded by 4.9%. Even if the figure does not exceed 4.6% this year’s second and third quarters have been the strongest since 2003.
