Pound US Dollar (GBP/USD) Exchange Rate Recovers Ground in Spite of Weaker Credit Conditions
As the impact of yesterday’s weaker UK consumer price index data faded the Pound Sterling to US Dollar (GBP/USD) exchange rate recovered some of its lost ground.
Although the Bank of England’s (BoE) latest survey of credit conditions pointed towards a lower level of domestic confidence this failed to weigh on Pound Sterling (GBP).
With markets already pricing in higher odds of a January interest rate cut the ultimate impact of the report proved limited.
Even so, as signs continue to point towards sluggishness within the UK economy this kept a ceiling on GBP exchange rates today.
Dovish Comments from BoE’s Haldane May Drag Pound Lower
Fresh comments from BoE chief economist Andy Haldane could see the Pound fall out of favour with investors once again, however.
Following on the heels of dovish comments from three other policymakers, including BoE Governor Mark Carney, markets are keen to gauge Haldane’s current outlook.
While Haldane has previously proved more hawkish in stance any indication that he is adopting a less optimistic outlook on the economy could see GBP exchange rates trending sharply lower.
As analysts at TD Securities noted:
‘Haldane had previously been upbeat about growth prospects for 2020, with the expectation that business investment and growth pick up once uncertainty recedes. If he reiterates that viewpoint, then we would stick with our call that the BoE is more likely to remain on hold at this month’s meeting, contingent on a decent bounce in the January PMIs. But if he substantially changes his tone, in line with the more recent MPC speakers, then that would tilt the odds toward a rate cut this month.’
As long as the odds of an imminent interest rate cut continue to mount the GBP/USD exchange rate looks set to remain on a weaker footing.
USD Exchange Rates Look for Boost on Rising US Retail Sales
Support for the US Dollar (USD) could pick up this afternoon, though, if December’s advance retail sales data shows improvement.
Investors may also take encouragement from the latest Philadelphia Fed manufacturing index, which is forecast to strengthen from 0.3 to 3.8 in January.
Evidence of renewed momentum within the US manufacturing sector could offer USD exchange rates a solid boost, in spite of the underwhelming nature of other recent manufacturing data.
With market risk appetite generally limited as optimism over the US-China trade agreement fades there is the potential for further US Dollar gains as safe-haven demand picks up.
US Dollar Exchange Rate Support Vulnerable to Signs of Slowing US Production
Friday’s US manufacturing and industrial production figures may offer fresh encouragement to the GBP/USD exchange rate, meanwhile.
As forecasts suggest a fresh monthly decline in both the manufacturing and industrial output data confidence in the underlying health of the US economy could take a blow.
With the US leaving a large swath of its tariffs on Chinese imports in place in the absence of a phase two trade agreement the potential for a further loss of domestic economic momentum remains.
On the other hand, if the world’s largest economy demonstrates evidence of resilience in the final month of 2019 this could see the GBP/USD exchange rate falter.