As non-essential UK retail shops reopened for the first time since the start of the latest national lockdown the Pound to US Dollar exchange rate found itself trending higher once again.
Last Week: Six-Year High in UK Construction Fails to Boost Pound Exchange Rates
A bout of profit taking saw the Pound fall sharply out of favour with investors last week, leaving the GBP/USD exchange rate on the back foot.
Although the UK construction PMI jumped to a six-year high in March, further reducing the apparent risk of a first quarter growth contraction, this was not enough to boost the Pound against its rivals.
A widened US trade deficit was not enough to drag the US Dollar lower against its rivals, meanwhile, even as worries over the global trade outlook lingered.
As March’s US producer price index figures showed an unexpectedly sharp uptick this offered encouragement to the US Dollar, suggesting that inflationary pressure is mounting within the world’s largest economy.
Three Things to Watch out for This Week
1. UK Gross Domestic Product
Support for the Pound could falter once again on Tuesday, however, with the release of February’s set of UK gross domestic product data.
While forecasts point towards a positive monthly growth rate this may not be enough to offset the impact of another sharp decline in the three-month moving average, casting fresh doubt over the economic outlook.
2. US Inflation Rate
The appeal of the US Dollar may improve on the back of March’s inflation data, as the headline rate looks set to pick up sharply on the year.
Fresh evidence of growing inflationary pressure within the US economy could well give USD exchange rates another boost, even with the Federal Reserve looking set to remain on hold for the foreseeable future.
3. US Retail Sales
Confidence in the underlying health of the US economy may also pick up in response to the latest retail sales data, with forecasts suggesting a strong monthly rebound.
As long as consumer spending and confidence shows signs of recovering at the end of the first quarter the mood towards the US Dollar is likely to improve.
GBP/USD Outlook
With a sharp spike in retail footfall boding well for the UK economic outlook the Pound to US Dollar exchange rate could see limited downside pressure in the near term, unless UK GDP data fails to impress.