Increasing political anxiety ahead of the US presidential election helped to boost the GBP/USD exchange rate, even as US retail sales saw a fresh surge.
Last Week: Surge in US Retail Sales Fails to Drive US Dollar Gains
Although sales surged 1.9% on the month in September this failed to give the US Dollar much of a lift on Friday, given existing worries over the strength of the economic outlook.
With the prospect of fresh fiscal stimulus still looking distant, and with industrial production in decline, investors saw limited reason to favour the US Dollar.
Even so, the Pound struggled to capitalise on this thanks to the lack of clarity on the UK government’s stance on the continuation of UK-EU trade talks.
The growing risk of a further tightening of Covid-19 restrictions also helped to limit the potential for GBP/USD exchange rate gains.
Three Things to Watch out for This Week
1. UK Consumer Price Index
The mood towards the Pound could see further improvement on the back of September’s UK consumer price index report.
With forecasts pointing towards the monthly inflation rate picking up from -0.4% to 0.5% this could offer the Bank of England (BoE) less cause for anxiety, reducing the odds of future policy action.
2. UK Retail Sales
However, worries over the health of the UK economy could pick up once again if retail sales growth slows on the month in September.
Evidence that renewed Covid-19 restrictions have started to dampen the earlier recovery momentum may leave the GBP/USD exchange rate biased to the downside.
3. US Manufacturing PMI
Demand for the US Dollar may see an improvement ahead of the weekend, meanwhile, if the latest Markit manufacturing PMI strengthens on the month.
As long as the manufacturing sector continues to demonstrate resilience in the face of growing political tensions and Covid-19 worries this could offer the US Dollar a solid rallying point.
The Pound to US Dollar exchange rate will continue being underpinned by US election uncertainty, Brexit, and stricter coronavirus restrictions.
However, signs of rising UK inflation may help to shore up the GBP/USD exchange rate further this week, although evidence of a UK retail sales slowdown could also weigh on market sentiment.