Pound US Dollar (GBP/USD) Exchange Rate Falls amid UK Strike action and Hawkish Fed Comments
The Pound US Dollar (GBP/USD) exchange rate slipped this morning, despite better-than-expected UK retail sales data, amid ongoing strike action from British workers.
At the time of writing, GBP/USD is trading at $1.1887, down from this morning’s high of $1.1923.
Pound (GBP) Slips despite Strong Retail Sales
The Pound (GBP) fell this morning as a surprise rise in UK retail sales failed to impress GBP bulls.
Domestic sales in the UK grew by 0.3% month on month in July, beating forecasts of a 0.2% contraction.
Retail sales volumes rose slightly by 0.3% in July 2022 following a fall of 0.2% in June 2022.
Retail remains 2.3% above its pre-pandemic level https://t.co/bnFf9PyzYw pic.twitter.com/grlMcDPpcm
— Office for National Statistics (ONS) (@ONS) August 19, 2022
However, these upbeat results were tempered by the year-on-year figures, which showed a larger-than-expected fall in sales of 3.4%.
Meanwhile, industrial action continues as transport workers strike across London. The strikes are likely to cause significant disruption in the capital, which could hurt economic activity at a difficult time for the UK economy.
In addition, ongoing strike action signals the growing discontent British workers feel as wage growth lags behind inflation, which rose to a 40-year high of 10.1% last month.
The UK is currently fraught with economic, political and social instability, making the Pound a less attractive currency for investors.
US Dollar (USD) Rises on Hawkish Fed Rhetoric
Turning to the US Dollar (USD), a risk-off market mood is boosting the appeal of the safe-haven currency.
Recently, signs of a slowing economic recovery in China, the energy crisis in Europe, and fears around the Zaporizhzhia nuclear power plant in Ukraine have weighed on the global market mood.
Additionally, recent Federal Reserve officials have made some hawkish comments, adding to the appetite for USD.
Policymakers Mary Daly and James Bullard hinted that another 75-bp interest rate rise is on the table at the US central bank’s September meeting. Meanwhile, the Fed’s Neel Kashkari said he doesn’t think the US is currently in a recession.
Markets had pared back rate hike expectations after cautious comments from Fed Chair Jerome Powell, cooling US inflation, and fears of a recession. However, recent strong data suggests that the US economy can withstand further aggressive rises, and policymakers have reiterated their commitment to bringing inflation down.
GBP/USD Exchange Rate Forecast: More Hawkish Fed Comments to Boost the US Dollar?
As the session unfolds, risk appetite could cause some movement in the GBP/USD exchange rate through the first part of the day. With the outlook in Europe currently rather bleak, the riskier Pound may remain under pressure.
The UN and Turkey are currently trying to broker an agreement between Moscow and Kyiv to demilitarise the Zaporizhzhia nuclear power plant. Any diplomatic breakthroughs could help the mood recover, although this seems unlikely considering Russia’s recent rhetoric.
Looking further ahead, Fed official Tom Barkin is due to deliver a speech this afternoon. If Barkin echoes his colleagues’ recent hawkish sentiment then the US Dollar could gain even more ground.