The British pound has posted gains in Wednesday trade, erasing the losses seen on Tuesday. In the North American session, GBP/USD is trading at 1.3287, up 0.26% on the day. On the release front, U.S numbers were mixed. U.S Preliminary GDP came in at 2.2%, just shy of 2.3%. However, ADP nonfarm payrolls dropped sharply to 178 thousand, well off the estimate of 191 thousand. Later in the day, the U.K releases GfK Consumer Confidence, which is expected to come in at -8 points, indicating weak consumer confidence.
After a sluggish first quarter and with the dark cloud of Brexit creeping ever closer, the health of the British economy is raising alarm bells. Economic growth in the first quarter was weaker than expected, and the unseasonably snowy weather in March cannot explain away the economic slowdown. Inflation has dropped to 2.4%, and the Office for National Statistics had a bleak message about the economy, noting that GDP expanded a negligible 0.1% in the first quarter. At its May meeting, the Bank of England reduced its forecast for growth in 2018 to 1.4%, down from the 1.8% forecast in February. With the May government still mired in trying to sort out the endlessly complex divorce with the European Union, the British pound could continue to face headwinds in the second quarter. A rate hike would boost the currency, but the BoE may be reluctant to make a move – the bank had to backtrack from an expected rate increase earlier in May, and there is growing speculation that we will see a repeat (lack of) performance at the BoE’s August meeting, with the odds of an August rate hike at less than 50 percent.
The markets continue to keep a close eye on the “on-again off-again” summit between the U.S and North Korean leaders. President Trump and North Korean leader Kim Jong-un are scheduled to meet in Singapore on June 12, but curiously, neither side will confirm whether the meeting is on. The White House has strongly hinted that the summit will take place, saying that the U.S continues to “actively prepare for President Trump’s expected summit with leader Kim in Singapore.” There is a flurry of activity around the summit – Trump has sent a team to Singapore and a senior North Korean official will meet with senior U.S officials on Wednesday. If Trump tweets out that the summit is on, we could see some positive movement from the US dollar.