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STORY LINK Pound to Dollar Week Ahead Forecast: GBP/USD Creeps Towards August Best
UK GDP data was in line with market expectations with US data and Federal Reserve interest rate expectations set to dominate markets. The Pound to Dollar (GBP/USD) exchange rate traded just above 1.2850 as UK sentiment held firm.
Markets remain extremely confident that the Federal Reserve will cut interest rates in September, although sentiment has shifted towards expecting a 25 basis-point cut.
This shift in expectations should limit the scope for aggressive dollar selling and make it difficult for GBP/USD to post August highs near 1.2900 unless today’s US data is very weak.
UK GDP was unchanged for June after a 0.4% May increase and in line with consensus forecasts.
Second quarter GDP increased 0.6% after a 0.7% increase previously and also met market expectations.
Services-sector output increased 0.8% in the three-month period while construction and industrial production were slightly lower.
ONS director of economic statistics Liz McKeown commented; “The UK economy has now grown strongly for two quarters, following the weakness we saw in the second half of last year. Growth across the three months was led by the service sector, where scientific research, the IT industry and legal services all did well.
Real GDP per head is still 0.1% lower compared with the same quarter a year ago.
Markets will be focussing on the second half of the year, especially with a new government in office.
Jake Finney, economist at PwC “There is good reason to expect that the second half of 2024 will be strong too. Our modelling indicates that the economy will grow by 1% across 2024 as a whole, up from 0.1% last year. Though even this could be an underestimate, if there is an upturn in consumer spending as the economic climate improves.
Resolution of public-sector strikes will also have a positive impact on growth.
Neil Birrell, chief investment officer at Premier Miton Investors commented; “The second quarter seems like a long time ago, but the GDP data confirms that the UK economy is in good health.”
The Bank of England will inevitably be watching data releases closely
Sanjay Raja, UK chief economist at Deutsche Bank Research, commented; “For the Bank of England, the slightly lower growth rate (including its composition) should leave the door open to further rate cuts – particularly given yesterday’s weaker inflation data.”
ING expects the next rate cut will come in November.
US data will be watched closely on Thursday, especially given the potential impact on confidence in the economy, Federal Reserve policy expectations and the dollar.
Consensus forecasts are for retail sales to increase 0.4% for July with initial jobless claims at 235,000.
Two important regional manufacturing surveys will also be released.
Weak data would drive further expectations of a 50 basis-point rate cut at the September Federal Reserve policy meeting while strong data would further dampen expectations of an aggressive rate cut.
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TAGS: Pound Dollar Forecasts
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