Pound US Dollar Exchange Rate Firms amid Mixed UK Data
(Updated 16:10, 22/7/21) The Pound US Dollar exchange rate has gained even more ground today, with GBP investors seemingly taking a positive view of some mixed UK data releases.
Industrial trends orders eased from 19 to 17 this month, though this was just above expectations and still one of the highest figures since the 1970s. However, while new orders surged, fears over staff and supply shortages, as well as cost increases, have worsened.
Business optimism dropped by 11 points, though it was forecast to rise by 7. Yet GBP investors were unfazed by the shock drop, as the figure still suggests high business morale.
US jobless claims unexpectedly rose by 50,000, which may have dented the US Dollar. However Ian Shepherdson, Chief Economist at Pantheon Macroeconomics, suggests this jump is due to ‘retooling shutdowns’.
The Pound US Dollar exchange rate seems to be levelling out now at around $1.375 after hitting highs of $1.378.
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Pound US Dollar Exchange Rate Rangebound as European Markets Remain Upbeat
With USD demand softened by a risk-on market mood and UK economic optimism wavering, the pair is currently trading in a narrow range around the $1.374 mark.
Pound (GBP) Clings on to Gains as UK Optimism Fades
The Pound (GBP) is just managing to hold on to its gains against the US Dollar (USD) so far this morning, thanks to USD’s current weakness.
The lack of movement comes amid new data and company reports that suggest the UK’s economic recovery isn’t as rosy as it may have seemed yesterday.
A mixed report from British multinational Unilever showed that while sales increased by 5%, beating estimates, cost inflation has been eating into the company’s profit margins.
Unilever CEO Alan Jope said:
‘We have seen further cost inflation emerge through the second quarter. Cost volatility and the timing of landing price actions create a higher than normal range of likely year end margin outcomes.
‘We are managing this dynamically and expect to maintain underlying operating margin for 2021 around flat.’
The report saw Unilever’s shares drop by 4%.
Meanwhile, UK consumer spending on credit and debit cards fell last week, suggesting that the post-lockdown surge in spending may be slowing down.
Despite this, the Pound US Dollar exchange rate has managed to hold its ground so far.
However, the latest business optimism index from the Confederation of British Industry has slumped from 38 to 27, well below expectations of 45. While there has been no immediate reaction in the Pound US Dollar pair, it could drag on GBP.
US Dollar (USD) Flat amid Risk-On Market Mood
Meanwhile, demand for the US Dollar is still softening as the market mood remains upbeat.
Yesterday saw stock markets bounce back from Monday’s selloff, with the FTSE 100 rising by 1.7% – its best day in five months. The sharp turnaround in risk sentiment saw investors ditch the safe-haven US Dollar for riskier assets.
Stock markets continue to recover so far today, albeit at a much slower pace, with the FTSE 100 up by 0.22% and the European Stoxx 600 up by 0.76% at the time of writing. While the risk-on sentiment persists, USD remains under pressure.
Pound US Dollar Exchange Rate Forecast: Pound in a Precarious Situation
The Pound US Dollar exchange rate seems to be in a precarious situation today, hanging on to yesterday’s gains only because global risk appetite is in its favour. If market sentiment sours again – on rising Covid cases or a downbeat economic outlook – we could see the pair slide.
The UK’s domestic Covid situation could also weigh on Sterling, if today’s data shows that cases, hospitalisations and deaths continue to rise. The ‘pingdemic’ may dent the Pound, too, as supermarkets struggle to keep shelves stocked due to high staff isolations.
Also pressuring the Pound is the latest data from the Confederation of British Industry. Factory orders dropped from 19 to 17 this month, modestly above expectations, while business optimism for the third quarter of 2021 slumped.
The US Dollar, on the other hand, could benefit from its unemployment data later today. Jobless claims are expected to continue to fall, indicating a strong US recovery and potentially supporting the ‘Greenback’. However, this may also increase risk appetite, which could limit USD’s upside.