Pound US Dollar (GBP/USD) Exchange Rate Remains Weak despite Upbeat PMI
(Updated 16:50, 21/4/23) The Pound US Dollar (GBP/USD) exchange rate fell sharply today after a larger-than-forecast contraction in UK retail sales.
Domestic British sales shrank by 0.9% last month, much worse than the forecast 0.5% contraction, raising worries about the country’s economy.
The Pound (GBP) was unable to regain ground initially, despite a strong services PMI. UK services sector activity unexpectedly improved this month, hitting a one-year high. Although the services industry accounts for around 80% of the UK’s economic output, this upbeat data failed to boost Sterling.
Later in the session, an improving market mood dampened the safe-haven US Dollar’s (USD) appeal, helping GBP/USD recoup losses.
At the time of writing, GBP/USD is trading at around $1.2416, down around 0.2% on the day but up from a low of $1.2367.
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Pound US Dollar (GBP/USD) Exchange Rate Falls as UK Sales Slump
The Pound US Dollar (GBP/USD) exchange rate fell sharply this morning after UK retail sales contracted more than forecast, raising concerns about the British economy. Could an upbeat services PMI help Sterling recoup its losses?
At the time of writing, GBP/USD is trading around $1.2381, down almost 0.5% on the day.
Pound (GBP) Slumps following Retail Sales Miss
The Pound (GBP) faced notable headwinds today following worrying news about the UK retail sector.
Retail sales contracted by 0.9% in March, much worse than the expected 0.5% decline.
Retail sales volumes fell by 0.9% in March 2023, following a rise of 1.1% in February 2023.
Retail is now 0.7% below its pre #COVID19 level.
➡️ https://t.co/KZnNLmo1r4 pic.twitter.com/tB1C4D5KiY
— Office for National Statistics (ONS) (@ONS) April 21, 2023
The downturn came as stubbornly high inflation eats away at household incomes. With real pay declining amid the cost-of-living crisis, consumers are tightening their purse strings.
A stronger-than-expected services PMI may be limiting Sterling’s downside, however.
The latest survey from S&P Global and the Chartered Institute of Procurement & Supply (CIPS) beat forecasts, rising from 52.9 to 54.9 – a one-year high. Meanwhile, inflationary pressures show signs of persisting.
Chris Williamson, Chief Business Economist at S&P Global, commented:
‘Flash PMI surveys signalled an acceleration of economic growth to the fastest for a year in April, building on a modest return to growth in the first quarter of the year…
‘This combination of faster growth and elevated price pressures put a twelfth rate hike by the Bank of England an increasingly done deal when it next meets on 11th May, and will add to speculation that further hikes may be needed.’
This strong service-sector growth and the prospect of more interest rate rises from the Bank of England (BoE) may be limiting GBP’s losses.
US Dollar (USD) Enjoys Downbeat Market mood
Meanwhile, the US Dollar (USD) has found support this morning as a gloomy market mood underpins the safe-haven currency.
Risk sentiment soured overnight, with global investors becoming increasingly concerned about a pessimistic outlook for growth.
In addition, the prospect of ongoing interest rate rises troubled markets, as central banks continue hiking rates to battle stubbornly high inflation.
These worries have seen investors favour the safe-haven ‘Greenback’ so far during today’s session, rather than the more risk-sensitive Pound.
GBP/USD Exchange Rate Forecast: Could the Pound Recover?
As the session unfolds, Sterling could claw back some losses courtesy of the strong PMI results. If the health of the UK’s vital services sector alleviates investor concerns about the weakness in retail, GBP/USD could climb.
Furthermore, Bank of England rate hike bets could lend the Pound some support.
Looking further ahead, the US S&P PMIs are also due out this afternoon. Although not as impactful as the ISM PMIs, they could still prompt some movement in the US Dollar.
Economists expect both service sector and manufacturing activity to worsen, with the latter set to suffer a deepening contraction. If the data prints as forecast, USD could face headwinds.