Pound US Dollar (GBP/USD) Exchange Rate Sinks as US Business Optimism Improves in May

GBP/USD Exchange Rate Falls as Risk Sentiment Begins to Deteriorate

The Pound to US Dollar (GBP/USD) exchange rate fell to $1.26 today, with the pairing down by -0.6% after the US NFIB Business Optimism Index for May beat forecasts and rose from 90.9 to 94.4. As a result, the ‘Greenback’ has benefited from renewed hopes in America’s economic recovery going forward.

NFIB’s chief economist Bill Dunkelberg commented on the report:

‘As states begin to reopen, small businesses continue to navigate the economic landscape rocked by Covid-19 and new government policies.’

‘It’s still uncertain when consumers will feel comfortable returning to small businesses and begin spending again, but owners are taking the necessary precautions to reopen safely.’

The US Dollar (USD) has also benefited from dampening risk-sentiment as investors become increasingly concerned over US-China trade relations. As a result, the ‘Greenback’ has benefited from returning market favourability of safe-haven currencies.

Minori Uchida, the head of global market research at MUFG Bank, Tokyo, commented:

‘At the moment, hopes for economic recovery are strong, but I expect this to gradually fade to increased concern about the U.S.-China relationship.’

Pound (GBP) Sinks as UK Retail Sector Continues to Struggle in May

The Pound (GBP) struggled today after UK retailers face declining sales owning to the coronavirus nationwide lockdown. This follows yesterday’s release of the BRC retail sales report for May, which remained low, despite improving from 5.7% to 7.9%.

Helen Dickinson, the BRC’s chief executive said:

‘Sales in May demonstrated yet another month of struggle for retailers across the country, despite an improvement on the previous month.’

Post-Brexit trade talks are due to begin between the UK and Japan today. As a result, we could see Sterling edge higher if the UK strikes a trade deal with its fourth largest non-EU trading partner.

However, concerns are growing over UK-EU talks, with fears over a possible no-deal becoming a reality this year.

Meanwhile, GBP investors will be awaiting today’s speech from Sir Jon Cunliffe, the Deputy Governor for Financial Stability at the Bank of England (BoE). If Mr. Cunliffe is downbeat about the British economy’s ability to recover, then we could see the GBP/USD exchange rate suffer.

GBP/USD Outlook: Could a Gloomy Fed Boost Demand for Riskier Assets?

US Dollar (USD) investors will be looking head to tomorrow’s interest rate decision from the Federal Reserve.

However, the FOMC Press Conference will likely dictate the direction for the ‘Greenback’ later tomorrow evening. If the Fed is notably negative about the American economy’s ability to recover, then we could see safe-haven demand slump.

Tomorrow will also see the release of the US inflation data for May. As a result, we could see the USD benefit from signs of economic improvement.

The GBP/USD exchange rate will remain sensitive to post-Brexit negotiations between the UK and the EU this week. Any signs that the UK could be heading for a no-deal Brexit in December would prove GBP-negative.

David Moore

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