(Updated 16:36 07/06/22)
The Pound US Dollar (GBP/USD) exchange rate made gains today amid a mild return of global risk appetite. The US Dollar (USD) is also seeing a mild pullback amid warnings from retail giants Target warned of the need to aggressively slash prices. Target slashed its profit forecast for the second time in as many weeks as high inflation hits demand. The news prompted fresh fears of a possible recession in the US.
At time of writing the GBP/USD exchange rate is at around $1.2577, which is up roughly 0.4% from this morning’s opening figures.
Pound US Dollar (GBP/USD) Exchange Rate Trends Sideways as UK PMI Surprises
The Pound US Dollar (GBP/USD) exchange rate is trading within a narrow range having hit close to two-week lows this morning. Despite surviving Monday’s no confidence vote, uncertainty surrounding Boris Johnson’s premiership is likely pulling the currency pair lower today. A risk-off market mood as well as a boost to US treasury yields could also be keeping GBP/USD suppressed.
On the other hand, an above-forecast reading of the UK’s May services PMI could be providing a short-term boost to the currency pair.
At time of writing the GBP/USD exchange rate is at around $1.2514, virtually unchanged from this morning’s opening figures.
Pound (GBP) Slides as Johnson Faces Continued Scrutiny
The Pound (GBP) is falling against its rivals today amid a retreat in global risk appetite. The future of PM Boris Johnson is likely keeping pressure on the currency. Figures this morning indicating an above-forecast drop to retail sales may also be causing Sterling to lose ground.
The UK’s cost-of-living crisis continued to limit household spending in May according to figures collected by the British Retail Consortium (BRC). Total retail spending in May fell by a greater than expected 1.5% year-on-year. The drop was the most significant since January 2021.
BRC chief executive Helen Dickinson said:
‘It is clear the post-pandemic spending bubble has burst, with retailers facing tougher trading conditions, falling consumer confidence, and soaring inflation impacting consumers spending power.’
An above-forecast reading of May’s PMI for the UK’s services sector may limit any significant losses for GBP, however. Whilst the sector did experience slowdown, losses were limited by a rapid recovery to spending on travel and leisure.
Continued uncertainty surrounding Boris Johnson’s premiership may also be denting the Pound’s chances today. As expected by markets, Johnson won Monday night’s vote of no confidence. The number of Conservative MP rebels was much higher than anticipated however, leading to speculation that Johnson’s days may be numbered.
Frederique Carrier at RBC Wealth Management said:
‘This is unlikely to be the end of turmoil and the victory is not clear enough to draw a line under the past few months.’
US Dollar (USD) Gains amid Risk-Off Market Mood
The US Dollar (USD) is trending higher against its competitors today. A softening of risk appetite in the markets is helping the safe haven ‘Greenback’ to make some gains. Additionally, an uptick to US Treasury bond yields may also be bolstering USD.
The rise to bond yields comes amid expectations that the Federal Reserve may continue to raise interest rates at an aggressive pace. Investors are awaiting Friday’s inflation figures for evidence that the central bank may pursue such a course of action.
Hawkish signals from multiple Fed policymakers have increased speculation of future rate hikes. Speaking on Friday, Fed board member Loretta Mester said that additional 0.5% rate hikes remained necessary unless she saw ‘compelling evidence’ to suggest otherwise. Similarly, policymaker Mary Daly has signalled her support for 0.5% rate hikes until inflation begins to fall.
GBP/USD Exchange Rate Forecast: Will US Inflation Remain High?
Looking ahead to the rest of the week for Sterling, a slowdown to growth in the UK’s construction sector could dent GBP if figures print as forecast on Wednesday. Away from economic data, faltering confidence in Boris Johnson could also continue to weigh on the currency.
For the US Dollar (USD), a narrowing of the US trade deficit could help to support USD later today. Investors will be most keenly awaiting Friday’s inflation figures, however. If figures remain high then it could strengthen the US Dollar amid increased expectations of a Fed rate hike.