Brexit Fears Sink Pound Sterling to US Dollar Exchange Rate; Above-Forecast Retail Sales Boost GBP/USD Today

Update: Pound Sterling to US Dollar Exchange Rate Slumps on Brexit Fears; UK Retail Sales Uptick Pushes GBP/USD Higher Today

The Pound Sterling to US Dollar exchange rate has been able to make mild gains this morning, with today’s UK retail sales data proving marginally better-than-expected.

Signs of strong consumer activity are always welcome, given that the UK economy is dominated by the service sector, so the fact British Retail Consortium (BRC) figures have today shown that like-for-like sales growth held steady at 0.6% has given the Pound a small lift.

Forecasts had expected to see sales growth slip to 0.5%.

Pound Sterling to US Dollar Exchange Rate Slumps on Brexit Fears; Strong UK PMIs Insufficient to Fuel GBP/USD Recovery

Brexit fears were weighing on the GBP/USD exchange rate for much of last week, with Pound Sterling ending the week -1.6% lower versus the US Dollar.

The GBP/USD exchange rate took a tumble on Wednesday after the EU published its first draft of the Brexit agreement and Prime Minister Theresa May immediately rejected it.

Particularly contentious was the suggestion by the EU that Northern Ireland remain in regulatory alignment with the bloc, avoiding the need for a hard border between it and the Republic, but effectively keeping part of the UK in the single market.

The Pound remained on soft form towards the end of the week after Theresa May delivered her Brexit speech, confirming that the government was seeking to leave the customs union and the single market.

May also admitted that this would mean abandoning certain benefits such as passport rights – something the UK’s world-leading financial services market relies heavily upon.

Despite better-than-expected results from February’s Markit manufacturing and construction PMIs, which hit 55.2 and 51.4 respectively, Pound Sterling remained on soft form.

A four-month high of 54.5 for the February services PMI yesterday pushed GBP/USD marginally higher, but so far this week Sterling remains on lacklustre form.

US Protectionism Ends GBP/USD Exchange Rate Losses as Markets Fear Global Trade War Following White House Steel and Aluminium Tariffs

Another strong step towards protectionism from the US administration helped the GBP/USD exchange rate to claw back a fraction of the losses made during the first half of last week.

The US Dollar was left on uncertain form as the weekend approached after the White House announced it would be levying tariffs of 25% on steel imports and 10% on aluminium imports.

Economists fear that such a move could harm the US economy, which has only a small domestic steel industry, as other major world powers such as the European Union and China could retaliate with tariffs on US goods.

Those fears remain this week, with Director General of the World Trade Organisation (WTO) Roberto Azevedo warning that President Donald Trump risks igniting the first full-scale global trade war since the 1930s.

Azevedo told a gathering of WTO members in Geneva that ‘in the light of recent announcements on trade policy measures, it is clear we now see a much higher and real risk of triggering an escalation of trade barriers around the world.’

Impact of Friday’s UK Data Slew upon GBP/USD Exchange Rate Forecast to be Overshadowed by US Non-farm Payrolls Report

The UK economic data calendar remains fairly empty over the coming days, other than an after-session speech from Bank of England (BoE) Chief Economist Andy Haldane this evening, which could weaken the GBP/USD exchange rate if he sounds cautious on the outlook for monetary policy.

The US data calendar has more on offer, but it won’t be until Friday that things really pick up for both the UK and the US.

The UK will publish trade data, industrial, manufacturing and construction production figures and the GDP estimate for February from the National Institute of Economic and Social Research (NIESR).

Meanwhile the US will publish its latest non-farm payrolls report and unemployment rate for February.

These are two of the most important releases in terms of the monetary policy outlook; strong results here will firm odds of interest rate hikes not just during this month’s Federal Open Market Committee (FOMC) meeting, but throughout the year.

Laura Parsons

Laura has been working in the financial services sector since 2012 and provides currency news updates for a number of online and print publications. Over the years she has produced exchange rate analysis for publishers like French Property News, The Express, The Telegraph and Forbes.

Contact Laura Parsons