Weak US Retail Sales Fail to Boost Pound Sterling US Dollar (GBP/USD) Exchange Rate
UPDATE: The Pound Sterling to US Dollar (GBP/USD) exchange rate failed to capitalise on an unexpectedly weak US advance retail sales figure.
Although sales showed growth of just 0.1% on the month, a six-month low, the mood towards the US Dollar (USD) still improved over the course of the afternoon.
Solid industrial production data offered support to USD exchange rates, suggesting that the US economy remains in a relatively robust state of health.
BoE’s Brexit Worries Fail to Prevent Pound Sterling to US Dollar (GBP/USD) Exchange Rate Gains as US Inflation Flops
UPDATE: Policymakers at the Bank of England noted increased concerns over the prospect of a no-deal Brexit and its impact on the UK economy.
Unless markets continue to see solid progress towards a deal between the UK and EU, they claimed, the odds of any fresh interest rate hike are likely to remain low.
Despite this, with US inflation data disappointing, this helped to set the Pound Sterling to US Dollar (GBP/USD) exchange rate on a stronger footing throughout the afternoon.
Pound Sterling (GBP) Exchange Rate Momentum Muted as BoE Leaves Interest Rates on Hold
UPDATE: As was widely anticipated, the Bank of England (BoE) voted unanimously to leave interest rates on hold at its September policy meeting.
This left the Pound Sterling to US Dollar (GBP/USD) exchange rate lacking in any particular support on Thursday lunchtime.
The cautiously optimistic nature of the BoE meeting minutes suggest that any change in monetary policy is unlikely to come anytime soon, leaving Pound Sterling (GBP) struggling to find momentum.
Pound Sterling US Dollar (GBP/USD) Exchange Rate Loses Traction Ahead of BoE Decision
Ahead of the Bank of England’s (BoE) September policy announcement GBP/USD is trading in a narrow range with GBP/USD currently trading at $1.3053 on the interbank market.
With investors not expecting to see any change in policy from the Monetary Policy Committee (MPC) this month demand for Pound Sterling (GBP) remained generally muted.
As analysts at TD Securities noted:
‘The MPC is likely content with incoming data, with July GDP and the labour market both showing continued momentum. With one hike expected next year, they’re also likely happy with the yield curve through 2019.
‘For now, the MPC will remain on the side-lines, until Brexit uncertainty is resolved in the next six months or so.’
Signs that policymakers are shifting to a more cautious outlook on monetary policy could see GBP exchange rates slump later on, with markets unlikely to greet the prospect of the BoE leaving interest rates on hold for longer.
US Dollar (USD) also Under Pressure after Fed Beige Book Points towards Weakening Growth
The release of the latest Federal Reserve Beige Book offered the Pound Sterling to US Dollar (GBP/USD) exchange rate a degree of support, however.
As three of the Fed’s twelve districts reported weaker growth in August this naturally raised concerns over the underlying strength of the US economy as a whole.
Concerns about the impact of trade tensions and tariffs were highlighted in the report, suggesting that the economy could face further slowdown pressures in the months ahead.
This helped to limit the appeal of the US Dollar (USD) overnight, especially in the wake of Wednesday’s underwhelming producer price index data.
GBP/USD Exchange Rate Could Benefit From Softer US Inflation
This afternoon’s US consumer price index data could give the Pound Sterling to US Dollar (GBP/USD) exchange rate an additional boost.
Forecasts point towards a modest easing in US inflationary pressure on the year in August, with the headline CPI rate expected to dip from 2.9% to 2.8%.
Demand for the US Dollar could diminish sharply on the back of a softer inflation reading, even though this is unlikely to dent the odds of the Federal Reserve raising interest rates imminently.
With markets having already priced in a September rate hike as a near certainty, though, a significant downside surprise may leave USD exchange rates vulnerable to a revision of these odds.
If August’s monthly budget statement shows a major widening of the deficit, as anticipated, this may drive the GBP/USD exchange rate higher.
Fluctuating Odds of No-Deal Brexit to Weigh on Pound Sterling US Dollar (GBP/USD) Exchange Rate
Looking ahead, speculation over Brexit is still likely to remain a key influence on the movement of the GBP/USD exchange rate.
As the odds of a no-deal Brexit continue to fluctuate the Pound looks set to remain volatile and vulnerable to any fresh political developments.
Unless Theresa May can generate more support for her Chequers proposals among Conservative MPs the prospect of a softer form of Brexit is likely to diminish.
On the other hand, if EU officials show any signs of hardening their approach to unresolved issues this could also drag on GBP exchange rates.
Until markets see evidence that the two sides are continuing to progress towards a deal GBP/USD exchange rate may struggle to find sustained traction.