The Pound US Dollar (EUR USD) exchange rate struggled to advance this morning despite the broad based weakness of the ‘Greenback’, as UK growth was revised down in the first quarter.
Data published this morning by the Office for National Statistics (ONS) shows that the UK’s economy only grew 0.2% in the first quarter of 2017, being revised down from 0.3% in the previous estimate.
The economic slowdown appears to have been largely driven by a drop in consumer spending as rising inflation and anaemic wage growth caused households to tighten their purse strings at the start of the year.
The ONS reported;
‘UK GDP growth slowed to 0.2% in Quarter 1 2017 as consumer facing industries such as retail and accommodation fell and household spending slowed. This was partly due to rising prices.’
‘Construction and manufacturing also showed little growth, while business services & finance continued to grow strongly.’
Meanwhile the US Dollar weakened late on Wednesday as the Federal Reserve appeared to adopt a more cautious outlook towards future rate hikes.
According to the minutes from the central bank’s latest meeting, the current slowdown in US economic data has some Fed policymakers nervous, with many wishing to wait until there is evidence that the downturn is temporary before committing to further monetary tightening.
Members of the Federal Open Market Committee (FOMC) also remained concerned by the new administration as they warned there was still ‘significant uncertainty’ over Trump’s economic policies.
While markets remain optimistic that Fed policy makers will still vote to raise interest rates in June, the dovish tone of the latest minutes suggests that any further rate hikes may be at risk this year, which led to a slide in USD.
The US Dollar may strengthen on Friday with the release of America’s own GDP figures, with the latest estimate expected to show that US economy grew 0.9% in the first quarter. While this is much lower than the 2.1% growth seen in Q4 2016, it is higher than the 0.7% growth estimated in the previous estimate.
Looking further ahead the GBP USD exchange rate is likely to fluctuate over the next couple of weeks ahead of the general election, especially if the gap between Labour and the Conservatives continues narrowing, prompting further uncertainty over how the upcoming Brexit negotiations are likely to play out.
Current Interbank Exchange Rates
At the time of writing the GBP USD exchange rate was trending around 1.2971 and the USD GBP exchange rate was trending around 0.7710.
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