GBP/USD Exchange Rate Ticks Higher on Underwhelming US Retail Sales Figures
(Updated: 14:15, 16/3/22) The Pound US Dollar exchange rate is trading with modest gains this afternoon as markets respond to the latest US retail sales figures.
Data printed this afternoon showed US sales growth slowed from an upwardly revised 4.9% to just 0.3% in February, missing forecasts for a 0.4% expansion.
However the Federal Reserve’s impending interest rate hike continues to limit the US Dollar’s losses.
Meanwhile, an improvement in market risk appetite is lending some support to the Pound this afternoon, amidst hopes the ongoing peace talks between Russia and Ukraine could yield results.
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Pound US Dollar Exchange Rate Rangebound ahead of Expected Fed Rate Hike
The Pound US Dollar (GBP/USD) exchange rate is rangebound this morning as markets brace for a widely-expected interest rate hike announcement from the Federal Reserve later this evening.
At the time of writing the GBP/USD exchange rate is trading at around $1.3061, virtually unchanged from this morning’s opening levels.
US Dollar (USD) Poised to Jump on Hawkish Fed Rate Hike
The US Dollar (USD) is currently trapped in a narrow range this morning as markets brace for the Federal Reserve interest rate decision.
The Fed looks set to deliver its first rate hike since 2018, after slashing rates to record lows at the start of the Covid pandemic in 2020. With US inflation currently running at a 40-year high of 7.9%, the Fed there is little doubt that the Fed will need to act this month.
USD investors are expecting the US central bank to deliver a quarter percentage increase this month. Previous suggestions the Fed could pursue a half percentage point increase were swiftly reversed following Russia’s invasion of Ukraine.
However with the hike largely priced in by markets, the direction of the US Dollar will likely be determined by the Fed’s forward guidance.
Markets will be looking to the tone struck by Fed Chair Jerome Powell in his accompanying press conference. Should Powell’s comments be broadly hawkish in tone and hint at the possibility of more aggressively raising interest rates in the future then the US Dollar looks likely to soar.
Pound (GBP) Movement Limited as BoE Rate Decision Looms
Movement in the Pound (GBP) is also limited this morning as GBP investors await the Bank of England’s (BoE) own interest rate decision on Thursday.
The BoE is also widely expected to raise interest rates this month, with GBP investors pricing in a hike of 25 basis points.
As with the Fed, a key focus will be on the BoE’s forward guidance, as the bank must finely balance the need to bring inflation back under control without undermining the UK’s economic recovery, and at a time when the war in Ukraine is creating considerable uncertainty.
If the BoE adopts a more cautious outlook this could see the Pound stumble tomorrow as it would a key pillar of Sterling support.
Pound US Dollar Exchange Rate Forecast: US Retail Sales to Dent US Dollar ahead of Fed Rate Hike?
While the Fed’s rate decision will undoubtedly be the main catalyst of movement in the Pound US Dollar exchange rate today. In the meantime, the pairing may also be influenced by the latest US retail sales figures.
This could exert some pressure on USD exchange rates as economists forecast sales growth will have slowed markedly in February.
Meanwhile, as GBP investors await the BoE’s rate decision on Thursday, the Pound could be driven by developments in Ukraine. Will progress towards a ceasefire reflect positively on Sterling on hopes it could help to alleviate inflationary pressures in the UK.