Pound US Dollar (GBP/USD) Exchange Rate Slumps on Ongoing GBP Headwinds
(Updated 16:30, 21/01/2022) The Pound US Dollar (GBP/US Dollar) continued its downward trajectory this afternoon as Pound sentiment was further dented by a dovish speech from Bank of England (BoE) policymaker Catherine Mann.
Mann stayed true to her dovish reputation, asserting that:
‘The next steps could exhibit a shallower path… We will make an assessment with regard to February policy only after reviewing the research from staff.’
She added that ‘changing expectations is the first defense against a reinforcing wage-price dynamic’ – implying that an interest rate hike would not be her preferred response to rising price pressures.
Meanwhile, Mann’s outlook for inflation ahead is bleak: ‘ingredients appear to be in place for inflation to stay strong for longer,’ said the BoE official; ‘current price and wage expectations coming from the DMP survey are inconsistent with the 2% target.’
Although the US Dollar also succumbed to downside today, losses were capped by risk-off support for the safe-haven currency. Investors were reluctant to make any bullish moves ahead of a later speech from the Federal Reserve’s Chair of Governors, Janet Yellen.
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GBP/USD Exchange Rate Sinks as UK Retail Data Shows Fall in December Sales
The Pound US Dollar (GBP/USD) exchange rate is tumbling this morning as data from the UK reveals worse-than-expected consumer confidence and a striking fall in retail sales. Meanwhile, the US Dollar (USD) trades mixed, gaining support from a risk-off market mood.
At the time of writing, GBP/USD is trading at $1.3569, down 0.2% from today’s opening levels.
Pound (GBP) Falls as Retail Sales Miss Estimates
The Pound (GBP) is trading down against the majority of its peers this morning following the release of disappointing UK retail sales.
Sterling initially got off to a bad start as January’s consumer confidence data revealed that levels had fallen to -19, the lowest level in eleven months. Persistently high inflation dampened sentiment, as UK households felt the effects of rapidly rising living costs.
Joe Staton, client strategy director at GfK, said that ‘despite some good news about the easing of Covid restrictions, consumers are clearly bracing themselves for surging inflation, rising fuel bills and the prospect of interest rate rises.’
Subsequently, retail sales volumes fell by 3.7% as opposed to the 0.6% expected. Analysts reminded markets that sales were still above their pre-coronavirus level: yet this failed to inspire optimism as forecasts for a further decline weighed upon trading sentiment.
Oliver Vernon-Harcourt, head of retail at Deloitte, predicts that:
‘Continued rising inflation will put pressure on both consumer spending and confidence over the coming months. Rising household costs will also prompt some consumers to tighten purse strings, at a time when 72% of UK consumers are already concerned that prices for everyday purchases will go up.’
US Dollar (USD) Recovers from Jobs-Inspired Losses
The US Dollar is trading up against the majority of its peers this morning as a risk-off mood supports the safe-haven currency.
The ‘Greenback’ appears to have shrugged off yesterday’s jobs-inspired headwinds: both initial and overall jobless claims were revealed to have risen over Christmas and into January, as Covid cases soared and the US reported record quit rates.
Bearish trading is triggered today by the Russia-Ukraine conflict, inflation fears and the US Federal Reserve’s policy tightening prospects, which put pressure upon other central banks to follow suit.
Regarding Russia in particular, the UK’s Foreign Secretary Liz Truss has commented that emboldened autocracies are seeking to export dictatorship: speaking at the Lowy Institute in Sydney on Thursday, Truss warned Russia that any invasion of Ukraine would lead to ‘a terrible quagmire and loss of life’ on the scale of the Soviet-Afghan war.
Pound US Dollar Exchange Rate Forecast: Central Bank Speakers to Influence Rates?
Looking ahead, speakers from both the Bank of England (BoE) and the Federal Reserve are in the spotlight later today.
The BoE’s Catherine Mann is a known dove and may inspire Sterling headwinds if she strikes a cautious tone; meanwhile, Janet Yellen, Chair of the Fed’s board of Governors, is also known for her dovishness and could likewise encourage bearish trading.
External factors, including risk sentiment, could also affect the Pound US Dollar exchange rate – any further political developments regarding UK PM Boris Johnson are likely to draw support away from the Pound.