GBP/USD Exchange Rate Revives on Improving Pound Sentiment
(Updated 16:00, 18/8/21) The Pound (GBP) has risen against the majority of its peers this afternoon as trading sentiment alters to favour the Pound.
US data has printed below expectations, with housing starts dropping by 7% as opposed to the predicted 2.6; crude oil stocks have also fallen, by 3.234 million barrels.
In addition, traders are wary of placing bets ahead of publication of the FOMC minutes. The minutes have potential to either boost or suppress the US Dollar (USD), depending on the tone of the central bank.
While USD is thus subdued, the Pound has been able to recoup some of its losses, despite a lack of data and concerns over the plight of Afghan citizens.
Original article continues below:
GBP/USD Exchange Rate Pressured by UK CPI, American Retail Figures
The Pound (GBP) retains its losses against the US Dollar (USD) this morning as both currencies face headwinds ahead of this afternoon’s data. The Federal Reserve is due to release minutes from its latest meeting at seven o’ clock, which will likely influence the GBP/USD exchange rate.
At the time of writing, GBP/USD is trading at $1.3739, virtually unchanged from today’s opening levels.
Pound (GBP) Muted on Disappointing Inflation Data
The Pound fell against the US Dollar yesterday as a risk-off mood prevailed, drawing support away from GBP and towards the safe-haven ‘Greenback’. A combination of factors prompted risk-averse sentiment, including worries over the end of the furlough scheme and a smaller-than-expected drop in benefit claimants for July.
Today’s inflation data has kept the Pound subdued, as it misses expectations of 2.3%, sliding down from last month’s growth. Downside pressure is limited, however, as investors wait to see the effects of the FOMC minutes on the GBP/USD exchange rate.
Despite initial concerns, economists are not overly worried about the fall in CPI. Samuel Tombs, chief UK economist at Pantheon Macroeconomics, says:
‘July’s decline in CPI inflation is attributable to the sharp increase in prices a year ago, when the economy emerged from lockdown… Looking ahead, the headline rate remains on course to rise sharply.’
The Pound still faces headwinds from external sources: the UK recently marked the highest number of virus-led deaths since March and continues to clash with the EU over Brexit policies. German media’s allegations over the UK’s stubborn behaviour and downbeat comments from the UK’s Leader Jacob Rees-Mog weigh upon GBP/USD prices.
US Dollar (USD) Wavers Ahead of Fed Minutes
The US Dollar benefitted yesterday as a risk-averse trading climate brought USD fresh gains. Investors are bearish today, however, as speculation over the Fed’s forward guidance is rife.
Yesterday’s poor retail sales figures capped ‘Greenback’s’ upward momentum as they fell by 1.1% in July as opposed to the 0.3% expected. The decline was led by a contraction in auto purchases, and as a resurgence in Covid-19 cases hit consumer demand.
Mike Loewengart, managing director of investment strategy at E*TRADE Financial, contemplates the data’s fallout:
‘While retail sales didn’t move in the direction we want to see, it was likely somewhat expected. Obviously the surge in the Delta variant is causing some short-term angst… the jury is out on how Americans will continue to spend.’
Top of investors’ minds today is the Fed’s tapering policy. It is in USD traders’ interests for the central bank to begin tapering asset purchases, which recent speakers have assured is imminent; but will Fed policymakers stick to the plan amidst volatile trading conditions?
Pound US Dollar Exchange Rate Forecast: USD to Drive Movement on Fed Guidance?
Looking to this afternoon, minutes from July’s Fed meeting are likely to drive movement in the GBP/USD exchange rate.
If the central bank sticks to its plan, hinting that asset purchases could start being reduced soon, the US Dollar is likely to find support; conversely, if the Fed strike a dovish tone, ‘Greenback’ may fall against its peers.
Calendar events aside, global coronavirus developments will likely affect GBP/USD prospects, as rising case numbers inspire a risk-off mood. Further political tensions between the UK and EU could also draw support away from the Pound.