Pound to US Dollar (GBP/USD) Exchange Rate Recovers on Broad USD Weakness Following Comments from President Trump
UPDATE: On Thursday night, US President Donald Trump delivered a fresh shock to currency markets and since then the Pound to US Dollar (GBP/USD) exchange rate has been recovering.
US President Trump expressed concern not just with the strength of the US Dollar (USD), but with rising US interest rates from the Federal Reserve.
Trump’s apparent criticism of the Fed concerned markets about the independence of the bank.
Investors became jittery about the possibility of a currency war, leaving US bond yields lower and the US Dollar much weaker, making it easier for GBP/USD to rise.
Pound Sterling to US Dollar Exchange Rate Falls Deeper into 10-Month-Lows on Solid US Data
UPDATE 2: Following the disappointing UK retail sales results published on Thursday morning, the Pound Sterling to US Dollar (GBP/USD) exchange rate continued to slip further into its worst levels in 10 months.
GBP/USD losses were exacerbated on Thursday afternoon, as the US Philadelphia Fed manufacturing index beat forecasts and there were less new jobless claims reported than expected.
With the Bank of England (BoE) having less support for a potential August interest rate hike and the Federal Reserve expecting to hike US interest rates multiple times over the next year, Central Bank policy divergence could keep GBP/USD weak.
Initial Jobless Claims Plunge to Lowest Levels Since the 1960s
UPDATE: Figures just released showed initial US jobless claims at 207k, against a forecast of 220k.
This represents the lowest level since 1969 and has helped to bolster the USD/GBP exchange rate.
Menor desempleo en USA desde 1960. @realDonaldTrump MAGA. “Initial Jobless Claims Plunge To Lowest Since The ’60s” https://t.co/8a9zsdEt3e #todas #feedly
— reymidasmoney (@reymidasmoney) July 19, 2018
Pound US Dollar Drops 0.9% as Rate Hike Bets Diminish After Retail Sales Figures
#UnitedKingdom Retail Sales month-on-month at -0.5% https://t.co/EwoFoJWCbm pic.twitter.com/DQbDA6ZK5c
— Trading Economics (@tEconomics) July 19, 2018
Pound to US Dollar Exchange Rate Slides to Fresh Lows as UK Retail Sales Figures Miss Forecasts
The concerns just keep piling up for Pound (GBP) investors this week, causing the Pound Sterling to US Dollar (GBP/USD) exchange rate to fall again on the latest disappointing UK retail sales results.
After opening this week at the interbank level of $1.32, GBP/USD briefly edged higher at the beginning of the week before plunging. At the time of writing on Thursday, GBP/USD had slumped again and was trending near a 10-month-low of $1.29.
The biggest news of the week has been the worsening market uncertainty about whether or the UK government will be able to smoothly pass its Brexit plans, as well as some disappointing UK ecostats weighing on Bank of England (BoE) interest rate hike bets.
UK data has been so poor that investors are no longer sure if the BoE will raise interest rates in its August policy decision meeting.
With the Federal Reserve still indicating that gradual US rate hikes are likely, the US Dollar (USD) has been able to easily capitalise on Sterling weakness.
Pound (GBP) Exchange Rates Extend Losses as UK Retail Sales Disappoint
Thursday rounded off this week’s disappointing UK ecostats with the publication of Britain’s June retail sales results. As with Wednesday’s UK inflation report, every key print fell short of forecasts and dragged the Pound (GBP) lower.
Month-on-month retail sales were forecast to slow to 0.2%, but instead plunged from 1.4% to -0.5%. The previous yearly figure was revised higher to 4.1%, but the June result came in at just 2.9% rather than the forecast 3.7%.
The retail sales figures excluding fuel were just as disappointing, coming in at -0.6% month-on-month and 3.0% year-on-year.
This data only added additional concerns about the Brexit process to the Pound movement, as traders fret that more and more aspects of Britain’s economy are being negatively impacted by the uncertainty of how the process will unfold.
According to Naeem Aslam from Think Markets:
‘The Pound has come under brutal selling pressure as the retail sales data was extremely bad.
In simple words, the retail data has made the matter worse for the British Pound which was already suffering from disappointing inflation numbers and a tumultuous week of politics.’
US Dollar (USD) Exchange Rates Remain Sturdy on Fed Bets despite Poor US Housing Stats
With many other major currencies weighed heavily by trade uncertainties or underwhelming data over the last week, the US Dollar (USD) has remained among the most appealing major currencies.
As the Federal Reserve has continued to indicate that it will hike US interest rates at a gradual pace, investors are buying the US Dollar as a safe haven.
On top of this, Fed Chairman Jerome Powell indicated this week that he did not believe the US-China trade war would have a significant impact on the US economic outlook or the bank’s monetary policy plans.
With the Fed potentially on track to hike US interest rates two more times in 2018 and the Bank of England (BoE) seemingly less likely to hike rates at all, the US Dollar has easily capitalised on Sterling weakness.
Due to market optimism about the Fed outlook, disappointing US housing data published on Wednesday had little impact on US Dollar strength.
Pound to US Dollar (GBP/USD) Forecast: US Growth Data in Focus Next Week
Friday’s data is unlikely to be noteworthy enough to influence a shift in the Pound to US Dollar (GBP/USD) exchange rate’s downside trend.
Britain’s June public sector net borrowing results will be published in the morning, followed by the latest Baker Hughes US oil rig count report in the afternoon.
As a result, unless there are positive Brexit developments or the Pound sees a strong rebound from its worst levels, GBP/USD is likely to end the week near its worst levels in 10 months.
While a focus will be kept on Brexit developments and UK political news, investors will be turning their attention to next week’s US data.
Next week’s UK economic data calendar will be a little quieter, with only business optimism results from CB due for publication, so the slew of US growth forecasts are more likely to drive GBP/USD.
US existing home sales data from June may be influential on Monday, and Markit’s US PMI projections for July will give investors a better idea of the current US economic health on Tuesday.
However, the biggest news of the week is likely to be next Friday’s US Gross Domestic Product (GDP) Q2 growth projection, which has a strong chance of influencing the Pound to US Dollar (GBP/USD) exchange rate.