Pound US Dollar (GBP/USD) Exchange Rate Softens on Pared BoE Rate Hike Bets
(Updated 21/7/23, 16:50)
The Pound US Dollar (GBP/USD) exchange rate is weakening this afternoon as the rally in the wake of stronger-than-expected retail sales runs out of steam. With UK inflation softer-than-expected, reduced rate hike bets from the Bank of England (BoE) could be weighing on Sterling once more.
At time of writing, the GBP/USD exchange rate is around $1.2849, a 0.22% drop from this morning’s opening levels.
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GBP/USD Exchange Rate Fluctuates as Retail Sector Remains Resilient
The Pound US Dollar exchange rate is trading narrowly after UK retail sales printed better than expected. MoM sales increased by 0.7% in June, beating expectations of a 0.2% climb.
At time of writing, the GBP/USD exchange rate is around $1.2932, relatively unchanged from this morning’s opening levels.
Pound (GBP) Supported by Strong Retail Growth
The Pound (GBP) is finding some modest support this morning in the wake of better-than-expected retail sales. Against expectations of a modest increase of 0.2% MoM, sales came in at 0.7% in the month of June.
The Office for National Statistics (ONS) reported that the hottest June on record boosted sales. Despite sales figures leaping, concerns linger around the UK economy. Ashley Webb, UK Economist at Capital Economics, warns that the full impact of interest rate hikes are yet to feed through. She added:
‘Sales boosted by sunny weather, but that may be as bright as it gets. The further increase in retail sales volumes in June suggests the recent resilience in economic activity hasn’t yet faded. But our view that interest rates will rise further, from 5% now to a peak of 5.50%. (This) suggests that it’s too soon to conclude that the rebound in retail sales will be sustained. And that the economy will avoid a recession.’
Also limiting any further gains was the first drop in consumer confidence as sentiment fell for the first time since January. The Gfk Consumer Confidence indicator recorded a decline for the first time in six months as soaring interest rates and persistently high inflation weighed on consumer sentiment. Forecasts for personal finances and the wider UK economy over the next year also dwindled.
US Dollar (USD) Underpinned by Rate Hike Bets
Meanwhile, the US Dollar (USD) is holding onto its gains after the strong recovery posted on Thursday. With a stubbornly tight labour market, highlighted by a surprise drop in jobless claims, the ‘Greenback’ remains supported by bolstered rate hike bets.
Amid a cautious market mood, safe-haven flows could also be keeping the US Dollar well supported, as global slowdown fears linger. Concerns over China’s economic growth continue to weigh heavily, as well as shaky US-China relations, geopolitical tensions could keep the safe-haven ‘Greenback’ supported heading into the weekend.
Pound US Dollar Exchange Rate Forecast: Downbeat PMIs to Dent Sterling?
Turning to next week, the Pound US Dollar exchange rate could see further movement with the latest PMI data for both the US and UK.
Sterling could remain under sustained pressure as both manufacturing and services are expected to slow. The manufacturing sector is set to slip further as demand wanes. Meanwhile, despite the services set to remain in expansion territory, it would mark the fourth consecutive month of slowing growth.
As for the US Dollar, demand could diminish as manufacturing PMI is also expected to decline. As for services, the sector is predicted to grow again, albeit at a slower pace.