Pound US Dollar Exchange Rate Slips amid Troubling Economic Uncertainty
The Pound US Dollar (GBP/USD) exchange rate is weakening today as inflation hits UK retail sales as above forecast PMI readings soften the blow.
At time of writing the GBP/USD exchange rate is trading around $1.1960, a 0.3% drop from this morning.
Pound (GBP) is Sliding as Inflationary Pressures Continue to Mount
The Pound (GBP) is seeing demand sap today as retail sales continued to decline, but better-than-expected PMI data lend modest support.
A second month of falling retail sales saw a 0.1% decline MoM in June, whilst the May readings were revised even lower by a 0.8% drop. June’s slump came despite a moderate boost in food sales thanks to the Queen’s Jubilee weekend. But this was largely offset by a drop in non-food sales led by clothing and household goods.
Helen Dickinson, chief executive of The British Retail Consortium, warned that the cost-of-living crisis will continue to damage household spending. She said:
‘Retailers are squeezed between higher costs and weaker demand, resulting in the most challenging trading period since the start of the pandemic.’
Meanwhile, better-than-expected PMI data is lending moderate support to Sterling. Both the manufacturing and services index came in higher than forecast. The manufacturing PMI came in at 52.2, narrowly beating out forecasts of 52. The service sector continued to slow but printed just above expectations at 53.3.
Despite coming in above market forecasts, the data is still troubling as the UK economy slows. Chris Williamson, Chief Business Economist at S&P Global, said:
‘UK economic growth slowed to a crawl in July, registering the slowest expansion since the lockdowns of early-2021. Although not yet in decline, with pent-up demand for vehicles and consumer-oriented services such as travel and tourism helping to sustain growth in July.’
US Dollar (USD) Firms amid Declining Risk Sentiment
The US Dollar is strengthening today after the initial bullish response from the European Central Bank’s (ECB) bold interest rate hike yesterday. With the ECB surprising the market and raising rates by 50bps, the ‘Greenback’ was under pressure from an upbeat mood.
Sentiment soon diminished as troubling news out of Germany today showed an unexpected contraction in the manufacturing sector. Being Europe’s largest economy, a contraction in Germany is a sure sign of a looming recession. As the market shifts to a risk-averse position, safe-haven flows are likely to support the US Dollar.
Pound US Dollar Forecast: Poor US PMIs to Limit Pound Losses?
All eyes will be on the release of key PMIs for the US later in the session. With an expected slowdown in both the manufacturing and service sector, the ‘Greenback’ could see some demand sap as the US deals with their own soaring inflation.
Meanwhile, the UK will be left to market sentiment to close the session this week as the cost-of-living crisis and ongoing political uncertainty will weigh heavily on Sterling.