Rising UK Retail Sales Fuel Pound US Dollar (GBP/USD) Exchange Rate Gains

Pound US Dollar (GBP/USD) Exchange Rate Pushes Higher as UK Retail Sales Grow

Stronger-than-expected UK retail sales helped to shore up the Pound Sterling to US Dollar (GBP/USD) exchange rate this morning.

Sales defied forecasts of a monthly contraction, instead picking up 0.2% in July as higher levels of online spending fuelled growth.

Although concerns over the outlook of the UK high street remain this uptick in sales still encouraged investors to buy into Pound Sterling (GBP) once again.

With consumers showing greater signs of resilience in the face of ongoing political jitters and Brexit-based anxiety GBP exchange rates were able to extend their recent rebound.

This positive showing also encouraged hopes that higher levels of consumer spending could help to limit the risk of the economy contracting again in the third quarter.

Fears of Potential US Recession Weaken US Dollar (USD) Support

Anxiety over the prospect of a potential US recession helped to keep the US Dollar (USD) on a weaker footing, meanwhile.

With the US yield curve remaining inverted for a second day investors remain concerned that the US economy is on track for a slowdown.

As Jim Reid, analyst at Deutsche Bank, noted:

‘Every inversion since 1956 has seen a recession follow. Although the median length of time to a recession is 17 months, credit spreads have pretty much exclusively widened from the point of inversion onwards.’

Even so, the downside potential of USD exchange rates was ultimately limited thanks to a resurgence in global trade tensions and market risk aversion.

Comments from the Chinese finance minister provoked fresh market anxiety, with China appearing set to proceed with ‘countermeasures’ in response to the currently-postponed US tariffs.

The risk of this move triggering a rapid escalation in the trade dispute enabled the US Dollar to find some limited support on the back of safe-haven demand.

USD Exchange Rates Forecast to Weaken on Advance Sales Slowdown

However, the mood towards the US Dollar could still sour over the course of the day if the latest raft of US data fails to show signs of resilience.

With advance retail sales forecast to show a slight loss of momentum on the month confidence in the underlying health of the US economy could fade.

Lower levels of consumer spending could contribute to the wider economic slowdown, increasing the likelihood of the world’s largest economy slipping into a state of recession in the coming year.

Unless July’s industrial and manufacturing production figures can offer evidence of strengthening the GBP/USD exchange rate could find a rallying point this afternoon.

Deteriorating Consumer Confidence Set to Drag on US Dollar

Further US Dollar weakness could be in store on Friday, with forecasts pointing towards a decline in the latest University of Michigan consumer sentiment index.

With the index expected to fall from 98.4 to 97.2 markets could find fresh cause for worry over the strength of the economic outlook.

Any continued flare up in US-China trade tensions, meanwhile, could leave USD exchange rates under pressure heading into the weekend.

If the Trump administration reverses its earlier decision to postpone a 10% tariff on an additional raft of Chinese products fresh pressure could be in store for US consumers.

Although trade tensions are likely to fuel increased market risk aversion this may not be enough to prevent the GBP/USD exchange rate gaining further ground.

Louisa Heath

Contact Louisa Heath