Flat UK Retail Sales Send Pound US Dollar (GBP/USD) Exchange Rate to Weekly Low

Flat UK Retail Sales Leave Pound Sterling US Dollar (GBP/USD) Exchange Rate on Back Foot

As the CBI reported retail sales index remained flat for a second month in January the Pound Sterling to US Dollar (GBP/USD) exchange rate slipped sharply.

This persistent weakness suggests that the retail sector failed to benefit from the result of the snap general election as a sense of Brexit-based anxiety lingered.

Commenting on the report, Anna Leach, CBI Deputy Chief Economist, noted:

‘A challenging Christmas has extended into the New Year, with little expectation of any improvement soon.

‘2020 looks set to be another tough year for the sector as growth in households’ disposable income is set to remain modest and retailers continue to battle longer-term issues such as digital disruption and the cumulative burden of policy costs.’

With the uncertainty surrounding the future relationship between the UK and EU likely to weigh on consumer sentiment in the months ahead the prospect of further weakness dented Pound Sterling (GBP).

Pound Slumps Thanks to German Industries’ Brexit Warning

A warning from the Federation of German Industries (BDI) added to the bearish mood of GBP exchange rates, meanwhile.

The powerful industry association highlighted the lingering risk of a hard-Brexit scenario thanks to the brevity of the agreed transition period.

This added fuel to existing doubts over the two sides’ ability to secure a full trade agreement before the end of the year, something which the BDI considers impossible.

Coupled with increasing jitters ahead of Friday’s deadline this left the Pound under renewed pressure against its rivals.

US Dollar (USD) Continues to Benefit from Market Coronavirus Fears

With markets still in a largely risk-averse mood thanks to the spread of the Wuhan coronavirus outbreak the US Dollar (USD) remained on a stronger footing.

Anxiety over the likely impact that the outbreak could have on Chinese growth and the wider global economy drove investors to favour safe-haven assets.

However, USD exchange rates could stumble this afternoon if December’s US durable goods orders data disappoints.

Unless orders show a solid rebound from November’s -2% monthly contraction confidence in the underlying health of the world’s largest economy could diminish.

While even a fresh slowdown here is unlikely to alter the odds of the Federal Reserve leaving interest rates on hold this week the mood towards the US Dollar could still sour.

GBP/USD Exchange Rate Vulnerable Ahead of BoE Rate Announcement

Further weakness could be in store for Pound Sterling on Thursday, meanwhile, in the wake of the Bank of England’s (BoE) latest policy announcement.

Markets remain wary of the potential for policymakers to cut interest rates, in spite of January’s better-than-expected manufacturing and services PMIs.

If the BoE follows through on its earlier signals and opts to loosen monetary policy this could see the Pound fall sharply out of favour.

On the other hand, with investors now pricing in lower odds of an imminent move the GBP/USD exchange rate could find limited upside potential in the event of policymakers choosing to remain on hold.

Louisa Heath

Contact Louisa Heath