GBP/USD Exchange Rate Strengthens as UK Wage Growth Hits Highest Level Since January 2009
UPDATE: As UK wage growth strengthened to its strongest level since January 2009 the appeal of Pound Sterling (GBP) picked up this morning.
With average weekly earnings still outpacing inflation in August confidence in the outlook of the wider economy improved, as higher wages may boost consumer spending.
While September’s US production data showed a solid improvement this was not enough to prevent the Pound Sterling to US Dollar (GBP/USD) exchange rate rising 0.5% on today’s opening level.
Weaker Retail Sales Weigh on US Dollar (USD) Demand
UPDATE: Unexpectedly weak US advance retail sales further diminished the appeal of the US Dollar (USD) this afternoon.
Investors were caught off guard as sales growth clocked in at just 0.1% in September, as opposed to the forecast 0.6%.
This suggested that the US economy is in a less solid state of growth, giving the Pound Sterling to US Dollar (GBP/USD) exchange rate a modest boost, although it is still down 0.1% on the day.
GBP/USD Exchange Rate under Pressure after May Rejects EU Border Proposals
The odds of a no-deal Brexit picked up over the weekend after Theresa May rejected key EU proposals over the Irish border, leaving Pound Sterling (GBP) exposed to selling pressure.
As markets had hoped to see the UK and EU come to an agreement ahead of Thursday’s EU summit investors were naturally discouraged by this latest breakdown in negotiations.
Now that the two sides have reached an impasse over the issue of a potential backstop, the prospect of any imminent deal has diminished sharply.
With the March 2019 deadline fast approaching there is limited time for, something which looks set to keep GBP exchange rates under pressure until signs of concrete progress emerge.
US Dollar (USD) Struggles to Hold onto Momentum despite Worsening Risk Appetite
After pushing higher ahead of the weekend the US Dollar (USD) struggled to hold onto its earlier momentum, softening against many of the majors.
While market demand for safe-haven assets remained elevated in the face of worsening relations between the US and Saudi Arabia this was not enough to push USD exchange rates higher at this stage.
The bullishness of the US Dollar’s recent run left the currency with little headroom on Monday, offering its rivals an opportunity to regain some ground.
Even so, the Pound Sterling to US Dollar (GBP/USD) exchange rate struggled to find any particular momentum, given lingering market concerns over Brexit.
USD Exchange Rates to Benefit from Hawkish Fed Meeting Minutes
US exchange rates could return to a stronger footing in the wake of the release of the September Federal Open Market Committee (FOMC) meeting minutes.
If the minutes prove sufficiently hawkish this would pave the way for the central bank to raise interest rates again in November or December.
As long as the Fed looks set to continue its interest rate hiking cycle the US Dollar is likely to face limited downside bias, especially if markets remain in a generally risk averse state.
With global trade tensions still elevated and the spat between the US and Saudi Arabia deepening the US Dollar looks set to benefit from the weakness of its risk-sensitive rivals in the days ahead.
Easing UK Inflation to Limit Pound Sterling (GBP) Demand
While Brexit is likely to dominate the headlines the Pound may come under additional pressure on the back of the September’s UK consumer price index data.
Forecasts point towards a weakening in inflationary pressure on both the month and the year, suggesting that domestic price pressures are easing.
Although the headline annual CPI is expected to remain in excess of the Bank of England’s (BoE) 2% target any slowdown may dent the GBP/USD exchange rate.
Any decline in the inflation rate would give BoE policymakers greater cause for caution, limiting the likelihood of monetary policy seeing any tightening in the near future.
If the latest average weekly earnings and retail sales figures also disappoint the Pound Sterling to US Dollar (GBP/USD) exchange rate is likely to shed further ground.