(Updated 16:45 18/02/22)
The Pound US Dollar (GBP/USD) exchange rate has ticked downward at day’s end. The US Dollar (USD) rose following hawkish comments from Federal Reserve officials concerning their March meeting. A retreating risk appetite as tensions at the Ukraine-Russia border has also kept USD buoyed.
At time of writing the GBP/USD exchange rate is at around $1.3584, roughly -0.2% from this morning’s opening figures.
Pound US Dollar (GBP/USD) Exchange Rate Muted amid Resurgent Risk Appetite
The Pound US Dollar (GBP/USD) exchange rate has traded within a narrow range today. A return of risk-on trading undermined the US Dollar (USD). A strong recovery to the UK’s retail sector helped boost the Pound (GBP).
At time of writing the Pound US Dollar exchange rate is at around $1.3626, virtually unchanged from this morning’s opening figures.
US Dollar (USD) Falls as US seeks Diplomatic Solution with Russia
The US Dollar (USD) has dropped its rivals today amid a risk-on trading sentiment. Hopes of a diplomatic solution at the Ukraine-Russia border have likely drawn investors away from the safe-haven ‘Greenback’.
Renewed hopes for a peaceful solution came after US secretary of state Antony Blinken revealed that he had accepted an invitation to meet with his Russia counterpart next week. The meeting will come amid allegations from both sides of artillery shelling at the Ukraine-Donbas border.
US President Joe Biden claimed that the allegations of artillery attacks was a ‘false flag’ attack in order to justify an attack on Ukraine. Russia meanwhile has accused the West of ‘hysteria’ over its troop build-up after it expelled US diplomats from Moscow.
Split opinions at the US Federal Reserve ahead of its next meeting likely also undermined USD. Reports have emerged indicating that the FED is divided on just how its extensive stimulus measures might be reduced, as well as disputes on how aggressive the central bank’s next interest rate hike should be.
Pound (GBP) Boosted by Strong Retail January Retail Figures
The Pound (GBP) climbed against its risk-off competitors today but made little head away against its riskiest rivals. A return of risk appetite as well as a strong recovery in the UK’s retail sector likely boosted Sterling.
Retail sales figures for January rose by 1.9%, well above forecasts of 1%. The figures represent a recovery of roughly half of December’s losses following a -4% decline. The rise to spending comes despite consumer price inflation rising to its highest point, 5.5%, since March 1992 in January.
Darren Morgan from the Office for National Statistics said:
‘After a sluggish December where the Omicron wave had a significant impact, retail sales rebounded in January with their biggest monthly rise since the shops reopened last spring. It was a good month for garden centres, department and household goods stores, with particularly strong trading for furniture and lighting.’
Alongside strong UK wage growth and inflation figures from earlier this week, the retail sales data is likely to increase calls for a March rate hike from the Bank of England (BoE). This in turn potentially helped bolster GBP.
Sterling could continue to see headwinds generated by the Northern Ireland protocol however. Speaking to the BBC, Irish foreign secretary Simon Coveney played down the possibility of significant progress at UK-EU talks next week. Coveney said that the talks were more likely to be a ‘staging post’ for each side to set out their negotiating positions.
GBP/USD Exchange Rate Forecast: Will Fed Officials Dispel Mixed Messages?
For the remainder of this week, a series of speeches from Fed officials on Friday could prompt movement in USD should investors pick up on any hawkish comments.
In the coming week, Thursday’s GDP growth figures could help boost the US Dollar should figures rise as forecast. A forecast rise to personal spending on Friday could also push USD higher.
For the Pound, Monday’s Flash PMIs for February could prompt an uptick in Sterling should the rise as forecast. A predicted slight recovery to February’s consumer confidence figures also could bolster GBP.