Pound US Dollar (GBP/USD) Exchange Rate Closes Lower as USD Enjoys Sales Increase

GBP/USD Exchange Rate Ticks Up From Earlier Lows

(Updated 16:50, 15/09/2022) The Pound US Dollar (GBP/USD) exchange rate remains weaker than its opening levels but has risen slightly above today’s lows, as Sterling investors may be cheered by the prospect of next Friday’s emergency mini-budget.

In response to escalating inflationary pressures, UK Chancellor of the Exchequer Kwasi Kwarteng is expected to announce winter tax cuts for struggling households, which will ease the burden of the living standards crisis. The Chancellor is also expected to go into detail regarding energy support measures.

Not everyone has high hopes for the mini-budget, however. Critics have flagged that the government’s plans to reverse the national insurance tax cut will benefit the richest, handing back approximately £1,800 a year to top earners compared with a meagre £7 for the lowest earners.

Kwarteng also faces criticism for the suggestion of capping bankers’ bonuses, which would boost the profits of millionaires at a time when the poorest in society are struggling to feed their families.

Forecasts of the government’s next moves are mixed, but on the whole, persistent risk aversion in the markets keeps Sterling appeal capped.

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Pound US Dollar Exchange Rate Drops to 6-Day Low

(Update 13:50, 15/09/2022) The Pound US Dollar (GBP/USD) exchange rate has extended its downturn this afternoon as US retail data exceeds expectations, buoying the US Dollar to the detriment of the Pound.

Retail sales in August grew by 0.3% rather than remaining unchanged as expected, as lower fuel prices allowed consumers to buy other items. According to the US Census Bureau, spending increased on motor vehicles, food and drink services, building materials and general merchandise.

Gains are capped somewhat, claim Bloomberg reporters, as although lower prices at the gas pump are very welcome, widespread inflation still limits Americans’ ability to spend on other things.

Nevertheless, August’s report ‘suggests consumer spending is far from collapsing’. Apparently, the US economy can tolerate escalating interest rates, as the Federal Reserve tightens monetary policy to combat rising consumer prices.

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GBP/USD Exchange Rate Tumbles as US Dollar Regains Strength

The Pound US Dollar (GBP/USD) exchange rate is trending down this morning as the US Dollar (USD) resumes an uptrend. The currency is climbing against its peers as risk-off sentiment attracts safe-haven support.

At the time of writing, GBP/USD is trading at $1.1504, down 0.3% from today’s opening levels.

US Dollar (USD) Supported by Quiet Trading Mood

The US Dollar is attracting support today as markets are quiet amid a relatively empty docket. A scarcity of economic data exposes riskier assets to losses, while the ‘Greenback’ enjoys safe-haven tailwinds.

The US Dollar struggled through yesterday’s session as uncertainty regarding the Federal Reserve’s outlook dampened USD appeal. In the wake of a slowdown in producer price inflation, the ‘Greenback’ came under pressure.

Such headwinds appear to have eased today, as markets remain confident that the Fed will hike interest rates next week, by either 75 or 100bps. Tuesday’s consumer inflation data helped to push short-dated bond yields higher which continues to support USD.

Also bolstering USD are expectations for this afternoon’s retail sales data. Analysts at Lloyds bank expect the ‘control group’ measure to have risen strongly by 0.7% in August, as consumer incomes are supported by the recent fall in gasoline prices.

Overall, the ‘Greenback’ is expected to fare well in the near term. Rabobank strategist Michael Every says ‘I don’t think there is anything that can stop the dollar’, while Alex Wolf, Asia head of investment strategy at J.P. Morgan Private Bank corroborates: ‘We believe the dollar may continue to see near-term upside and that strength is likely to persist.’

Pound (GBP) Crashes as Risk-On Tailwinds Expire

The Pound (GBP) is tumbling against its peers today following yesterday’s broad move higher, as risk-off sentiment depresses the currency and inflation expectations are released.

Market mood has weakened this morning despite news that the People’s Bank of China (PBOC) will provide more than 200 billion yuan to commercial banks as special lending funds. Recession fears linger while hawkish expectations for the Fed raise the issue of central bank policy divergence.

Furthermore, expectations for UK inflation in 2023 are at a record high, illustrating public concern regarding the living standards crisis. The quarterly survey conducted by the Bank of England (BoE) with Ipsos revealed that inflation expectations for the year ahead stand at 4.9%.

The reading is well above the BoE’s 2% inflation target; even the 5-year ahead estimate exceeds target at 3.1%. Net public confidence in the Bank of England as an institution has fallen to -7% versus -3% in May.

Members of the Monetary Policy Committee (MPC) express concern that such expectations could prompt a vicious inflationary spiral. However, the impact of this month’s release is limited somewhat as August’s survey was conducted prior to the government’s announcement of the Energy Price Guarantee scheme.

GBP/USD Exchange Rate Forecast: US Data to Inspire Movement?

Looking ahead, a lack of UK releases leaves the Pound US Dollar exchange rate to trade on US data this afternoon. Retail statistics will likely be in the spotlight, with an increase in August’s sales lending possible support to the ‘Greenback’.

Elsewhere, trading sentiment in the UK could be affected by further announcements of business closures for the 19 September bank holiday to mark the Queen’s funeral. The mass closure of bars, restaurants, shops, entertainment venues and various health services is likely to dent UK productivity.

Olivia Evershed

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