Pound US Dollar (GBP/USD) Exchange Rate Strengthens amid Returning Risk Appetite
The Pound US Dollar (GBP/USD) exchange rate is rallying today as global market moods improve and safe-haven flows slow.
At time of writing, the GBP/USD exchange rate is around $1.2119, a 0.28% climb from this morning’s opening levels.
US Dollar (USD) Quiet ahead of CPI Inflation Reading
The US Dollar is remaining relatively subdued today as investors are reluctant in making big moves ahead of the eagerly anticipated CPI reading tomorrow. With an expected softening of inflation YoY for July, concerns still linger as to whether inflationary pressures are under control.
An uptick in market mood has also seen support for the ‘Greenback’ wane, as safe-haven flows started to slow in favour of more risk-sensitive currencies. An improvement in global market sentiment has come off the back of positive data out of China
However, continued geopolitical tensions between China and the US will likely weigh on the ‘Greenback’. China confirmed it will continue its live-fire drills around Taiwan in the wake of Nancy Pelosi’s unsanctioned trip to the island.
Pound (GBP) Firms on Positive Retail Sales Data
The Pound (GBP) is finding modest strength today despite the myriad of headwinds persisting. Political uncertainty and a gloomy economic outlook from the Bank of England (BoE) continue to weigh on Sterling but surprising retail sales data buoyed the Pound.
A modest boost could have come from the latest British Retail Consortium (BRC) report that showed a surprising uptick in retail sales YoY in July. Hot weather clothing, picnic supplies and fans bolstered sales that snapped a four-month streak of declining sales. An increase of 1.6% YoY in July from last year was welcome news but analysts warned that soaring costs due to inflation were countered by falling sales volumes.
Meanwhile, weighing on the Pound is the worsening cost-of-living crisis and the impending energy price rise. A spokesperson for Prime Minister Boris Johnson has ruled out any fiscal support in the short term and instead such support will be up to the new leader. But question marks over Conservative leader front-runner Liz Truss’ fiscal policies are concerning investors. Her repeated calls for tax cuts without saying how they will be paid for could be a recipe for economic disaster if she was to become the next Prime Minister.
Pound US Dollar Exchange Rate Forecast: Softening US Inflation to Further Dampen the US Dollar?
With data thin on the ground for the rest of the day, attention will turn to the release of US CPI inflation reading for the month of July. An expected drop to 8.7% but a falling GDP and a number of mixed economic data is still raising concerns that inflationary pressures are far from under control.
Meanwhile, the Pound could encounter further fluctuations as a lack of major data until Friday could see ongoing political turmoil weigh on Sterling.