Published On: Thu, Aug 24th, 2017

Pound v US dollar: GBP finds strength following GDP data

Sterling is currently at $1.284 against the US Dollar, down 0.38 per cent from its opening levels of around $1.290.

Data published by the Office for National Statistics (ONS) this morning showed that GDP remained in line with the previous estimate, confirming that the UK economy grew from 0.2 per cent to 0.3 per cent in the second quarter, alleviating fears that the private surveys may have been a little over optimistic in comparison to the reading from the ONS.

However, despite the rise, GDP overall remains relatively subdued this year, down from 0.6 per cent from the same period in 2016, with a fall in consumer spending seen as key factor in the UK’s slowing economic growth.

James Smith, economist at ING Bank said: “Second quarter UK GDP remained unrevised at 0.3 per cent, but what matters today are the underlying growth drivers – and on consumption, the news isn’t encouraging.

“Having grown fairly consistently at a rate of 0.7-0.8 per cent each quarter in 2016, consumer spending slumped to a two and a half year low of just 0.1 per cent quarter on quarter.”

Adding to concerns was the accompanying business investment figures which revealed that investment remained flat in the second quarter as Brexit uncertainty caused firms to become more cautious in spending, presenting a bleak outlook for further growth in the UK.

Lee Hopley, chief economist at manufacturers’ organisation EEF added: “Another quarter passes without any sustained positive contribution from either net trade or business investment, which doesn’t feel like the most stable of foundations for a post-Brexit economy.”

Meanwhile, USD investors are currently focused on the start of the Jackson Hole symposium later today as financial markets hope that the summit will provide some insight into the direction of central bank policy over the coming months.

The speech by Federal Reserve Chair Janet Yellen tomorrow afternoon will of course be the big event for USD investors as traders hope to gleam some information on the bank’s expected plan to begin reducing its sizable balance sheet and whether lacklustre inflation figures will delay the next interest rate hike as many analysts predict.

Looking ahead, the GBP/USD exchange rate may slide again later this afternoon as the US releases its latest housing figures, with the US dollar likely to strengthen if existing home sales climb 0.9 per cent in August as forecast, with investors hoping it will help to reverse the 1.8 per cent decline in sales seen the previous month.

Meanwhile a lull in domestic data until Wednesday may prompt Sterling to weaken over the next few days as it is left exposed to further Brexit uncertainty ahead of the next round of talks in October.

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