Pound US Dollar (GBP/USD) Exchange Rate Drops after Poor UK Retail Data

Pound US Dollar (GBP/USD) Exchange Rate Slips Despite Drop to US Consumer Confidence

(Updated 16:40 26/07/22 )

The Pound US Dollar (GBP/USD) exchange rate continue to fall today. A risk-off trading mood saw the currency pair fall lower. Global recession fears intensified bets on the safe-haven Greenback after the IMF slashed growth forecasts for 2022.

GBP/USD likely saw some of its losses limited by an above-forecast drop to US consumer confidence, however. The index fell in July to its lowest point since February 2021. The figures printed at 95.7 versus forecasts of 97.2

Lynn Franco, senior director of economic indicators at The Conference Board, said:

‘Looking ahead, inflation and additional rate hikes are likely to continue posing strong headwinds for consumer spending and economic growth over the next six months’

At time of writing the GBP/USD exchange rate is at around $1.2025, which is down around -0.2% from this morning’s opening figures.

Original article continues below:

Pound US Dollar (GBP/USD) Exchange Rate Drops amid Risk-Off Mood

The Pound US Dollar (GBP/USD) exchange rate is tumbling today after figures indicated further woes for the UK’s retail sector. A retreat to risk appetite may also be causing the currency pair to slump.

At time of writing the GBP/USD exchange rate is at around $1.993, roughly -0.5% down from this morning’s opening figures.

Pound (GBP) Tumbles as UK Retail Sector sees Further Woes

The Pound (GBP) is sliding against its competitors today. A further drop to retail sales volumes is likely pushing Sterling lower today.

The CBI’s distributives trades figures showed a drop to retail sales in July. Sales did edge up from June’s -5 reading to -4, although expectations for August fell drastically to -14. The figures are the weakest since March 2021 which came amid widespread Covid-19 restrictions in the UK.

CBI economist Martin Sartorius said:

‘Retail activity continues to take a hit as consumers struggle to cope with the effects of the cost-of-living crisis.’

Political uncertainty may also be weighing on the currency today. Conservative leadership candidates Rishi Sunak and Liz Truss continue to participate in televised debates.

Mixed expectations for action from the Bank of England (BoE) may also be pushing the Pound lower. Whilst most economists expect a 0.5% rate hike from the Bo. Others feel however that the lack of second-round inflation effects may prompt a more cautious approach from the central bank.

US Dollar (USD) Firms ahead of Fed Interest Rate Decision

The US Dollar (USD) is making gains today amid a return of risk-off appetite. Fears of a potential recession in Germany and the European gas crisis are likely prompting increased bets on the safe-haven ‘Greenback’.

USD may also be seeing gains today as investors continue to place bets ahead of the Federal Reserve’s interest rate decision on Wednesday. Economists remain largely unanimous in their view that the Fed will hike rates by 0.75%.

Philip Marey, Senior US Strategist at Rabobank, said:

‘We expect the FOMC to raise the target range for the federal funds rate by 75 bps to 2.25-2.50%’

Marey also stated that the Fed ‘may not be ready’ to commit to a 1% rate hike yet. Markets had previously been pricing in such a move after inflation hit fresh highs last week.

Some analysts remained worried that the sustained aggressive moves from the Fed could push the US economy closer to a recession, however. This may limit substantial gains for USD today as well as a downturn to US Treasury bond yields.

GBP/USD Exchange Rate Forecast: Will Fed Raise Rates Above Forecasts?

With no other significant data over the rest of the week for Sterling, the currency may continue to see headwinds amid the Conservative leadership contest.

For the US Dollar, investors are awaiting the Fed’s interest rate decision on Wednesday. Markets have largely priced in a 0.75% rate hike so such a move could prompt little movement in USD. An above-forecast move could see USD leap, however.

Any hawkish comments from the Fed’s press conference following the decision could also push the currency higher.

A recovery to GDP growth could also see gains for the US Dollar if Thursday’s figures print as forecast. Second quarter GDP growth is currently forecast to rise to 0.6% versus the previous quarter’s fall of -1.6%.

Friday’s predicted slip to the PCE price index, the Fed’s preferred measure of inflation, could see USD slip however amid signs of cooling inflation.

Gareth Monk

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