The Pound to US Dollar exchange rate plummeted through longstanding psychological support last week to strike its lowest level for five weeks.
UK CPI & US Retail Sales Send GBP/USD Sliding
Sterling got off to a bad start last week as the US Dollar benefitted from a better-than-anticipated 0.6% expansion in retail sales. Meanwhile, demand for the Pound was hit by a lower-than-forecast UK CPI score of 2.6%, which was seen to reduce the chances of a rate hike anytime soon from the Bank of England.
The majority of the policymakers at the BoE appear happy to leave rates on hold at rock-bottom lows, even while British inflation runs above target. This is because the impact of Sterling’s post-Brexit depreciation is beginning to fade and price pressures are seen falling over the next six months.
Historic British Unemployment Unable to Significantly Lift Sterling
The Pound managed to salvage some minor gains on Wednesday as UK unemployment unexpectedly slid to 4.4%, its lowest level for 42 years. Wage growth also beat estimates, rising from 1.8% to 2.1%, however, this was not enough to significantly bolster demand for Sterling because the wage increase still undershot the rate of inflation by 0.5%.
Across the pond in the US, the latest Federal Reserve minutes report pointed to a divide between policymakers, with the hawks arguing that the labour market had already reached full employment, and the doves stating that the central bank should wait for inflation to rise before hiking rates again.
GBP/USD Reaches 5-Week Low
On Thursday UK retail sales printed at 1.5%, down from 2.8% previously, which did little to bolster demand for the Pound. And GBP/USD tumbled to a fresh five-week low on Friday following a seven-month high US consumer sentiment print of 97.6. The ‘Greenback’ remained under pressure due to concerns that US President Donald Trump’s administration would struggle to pass any pro-growth policies, but this did not translate into any lasting gains for Sterling.
Week Ahead
Two events stand out on the economic calendar this week: the Q2 UK GDP report and Federal Reserve Chairwoman Janet Yellen’s speech at the Jackson Hole symposium.
British growth is anticipated to have increased 0.3% in the second quarter. Anything lower than that could drive GBP/USD to fresh monthly lows, while an upside surprise could breathe some life into ‘Cable’.
However, Friday’s Jackson Hole speech from Janet Yellen could easily blow the UK GDP report out of the water. The Fed has used the symposium as a platform to unveil new policy initiatives in the past and a repeat could benefit the ‘Greenback’. Indeed, the US Dollar looks set to rally if Yellen unveils concrete plans to wind down the QE balance sheet or raise rates again in 2017, while a more cautionary outlook could give Sterling the impetus for a mild rebound.