US dollar strength halts British pound GDP-led move higher

on Oct 26, 2017
Updated: Oct 11, 2019
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The well-supported US dollar halted the British pound’s GDP-led gains, in the UK's Thursday morning trading session.

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A better-than-expected preliminary Wednesday, gave sterling a boost. However, further upbeat data and other developments, continue to give the dollar more momentum.

In mid-morning trade, the British pound was at around $1.321 against the dollar. While that was an improvement from $1.3181 earlier in the session, it was down from the $1.328 levels cable hit overnight.

Investors prefer US outlook

The US dollar moves come as it appears investors are more impressed by the US news flow than that of the UK.

Wednesday brought an unexpectedly strong gain in US data. In addition, suggestions that President Trump’s Republicans favour a new Federal Reserve Chair more supportive of their own monetary policy views, is also considered as positive.

Meanwhile, expectations that current Fed Governor, Janet Yellen, will announce a third rate hike this year at the December central bank policy meeting, continue to contribute to the US dollar’s allure.

UK outlook marred by headwinds

In contrast to the US backdrop, things are little more uncertain in the UK and for the British pound.

Brexit negotiations are testing and although there is some good news in that they will move forward, how successful they will ultimately prove to be for either party, remains a big unknown. Indeed, there is still much talk that the UK could walk away from the EU with no deal at all.

In addition to that, the signs of the UK’s economic expansion for 2017 are pretty good. But, that uncertainty over the future relationship with the EU – its biggest export market – remains. And that puts a big question mark over whether or not the current expansion will continue.

Meanwhile, as the Bank of England (BOE) is widely expected to raise interest rates next week, all eyes will be on the latest Quarterly Inflation Report. The central bank’s latest forecasts for growth, inflation and the future interest rate path, will help determine investor sentiment.

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