Pound US Dollar (GBP/USD) Exchange Rate Drops as UK Retail Sales Slump
The Pound US Dollar (GBP/USD) exchange rate is weakening this morning, following the news that UK December retail sales fell.
At the time of writing, GBP/USD is trading at around US$1.2347, a decline of roughly 0.4% from the morning’s opening rates.
Pound (GBP) Sinks as December Retail Sales Fall
The Pound (GBP) is weakening this morning, as December’s retail sales data printed a shock fall to -1%. Analysts had forecast an increase from -0.4% to 0.5%, while the data for November was similarly revised downwards to -0.5%.
Olivia Cross, an Economist at Capital Economics, explored the release. She stated:
‘[The data showed a] disappointing end to a difficult year. Today’s retail sales release suggests that some of the resilience in the economy towards the end of last year appeared to peter out in December’
Cross further went on to state that high inflation and rising interest rates are likely to weigh more heavily in 2023.
As such, the UK’s economic outlook is taking yet another beating as the country stares down a prolonged recession. Because of this, sentiment towards Sterling is waning this morning, pushing GBP investors to other opportunities.
Furthermore, market research firm GfK published a report which shows that UK consumer sentiment has hit a near 50-year low.
Joe Station, GfK’s Client Strategy Director, stated:
‘With inflation continuing to swallow up pay rises, and the prospect of some shocking energy bills landing soon, the forecast for consumer confidence this year is not looking good.’
US Dollar (USD) Restricted by Upbeat Market Mood
The US Dollar (USD) is struggling to make gains against other peers beyond GBP this morning, amid an upbeat market mood.
As a safe-haven currency, a lack of impactful data on the cards is leaving USD vulnerable to shifting market sentiment.
An unexpected fall in jobless claims pointed to a tight labour market yesterday, prompting optimism towards the US economy. As such, investors appear to be seeking riskier investments during today’s session.
Furthermore, the tightening labour market may have diminished rate hike bets, as the Federal Reserve seems open to smaller hikes.
Pound US Dollar (GBP/USD) Exchange Rate Forecast: PMI Indexes in Focus
Looking ahead to next week for the Pound (GBP), liquidity is thin until Tuesday. Then, January’s manufacturing and services PMI flashes are due to print. Both are expected to remain in contractionary territory, with manufacturing indexes forecast to print at 45.7 and services to be at 49.9.
As such, this may weaken Sterling by reaffirming the UK’s slide towards recession, as the UK economy continues to weaken.
For the US Dollar (USD), the same is true. Tuesday brings the release of January’s services and manufacturing PMI flashes. Similar to the UK, both sectors are forecast to remain in contraction. This could also weaken the ‘Greenback’ by pointing to a recession for the economic superpower which would lead to pared back rate hike bets.