Sliding US Export Price Index Offers Boost to Pound Sterling US Dollar (GBP/USD) Exchange Rate
As March’s US import and export price indexes both showed a sharp contraction the Pound Sterling to US Dollar (GBP/USD) exchange rate gained fresh ground.
With signs still pointing towards the US economy coming under greater pressure as a result of the Covid-19 lockdown the appeal of the US Dollar (USD) diminished.
A general improvement in market risk appetite also weighed on USD exchange rates today, spurred on by a better-than-expected set of Chinese trade data.
As export volumes saw a smaller decline than forecast in March this encouraged bets that the world’s second largest economy is turning a corner, limiting demand for the safe-haven US Dollar.
Pound Shakes off Grim OBR Projection of Second Quarter GDP Contraction
Pound Sterling (GBP) made solid gains over the course of the day, meanwhile, in spite of an absence of fresh UK data releases.
Investors were not discouraged by the grim nature of the Office for Budget Responsibility’s (OBR) latest set of economic projections.
Even though the OBR warned that the UK economy could potentially face a slowdown as sharp as -35% in the second quarter the GBP/USD exchange rate held onto a positive footing.
While it remains to be seen just how severely the Covid-19 lockdown has already impacted economic activity the Pound was able to avoid any fresh selling pressure for the time being.
Drop in US Retail Sales Forecast to Offer GBP/USD Exchange Rate Rallying Point
Further losses could be in store for the US Dollar tomorrow with the release of March’s US advance retail sales report.
Forecasts point towards a -8% decline in sales on the month, highlighting a severe decline in consumer activity at the end of the first quarter.
As long as signs continue to point towards activity weakening in the wake of the Covid-19 outbreak the risk of a major gross domestic product slowdown looks set to build.
With consumer spending unlikely to see any major recovery in the near future an even sharper fall here could weigh heavily on USD exchange rates.
Monthly Manufacturing Decline Set to Weigh on US Dollar Demand
March’s US industrial and manufacturing production figures could also offer a further boost to the GBP/USD exchange rate on Tuesday.
A sharp monthly drop in production would confirm that the US economy is already suffering from the impact of the pandemic, adding to bets of a weaker first quarter performance.
The latest New York Empire manufacturing index may equally put a dampener on the US Dollar tomorrow, with the index expected to fall deeper into negative territory.
If the index dips from -21.5 to -35 as forecast this could limit the potential for USD exchange rates to recover their footing in the near term, even if the general sense of market risk appetite fades.