Pound US Dollar (GBP/USD) Exchange Rate Stumbles on Abysmal UK Retail Sales Print

Pound US Dollar (GBP/USD) Exchange Rate Undermined by Gloomy UK Data

The Pound US Dollar (GBP/USD) exchange rate is losing ground this morning following lacklustre UK retail sales data.

At the time of writing the GBP/USD exchange rate is trading at $1.2121, down 0.2% from this morning’s opening rate.

Pound (GBP) Slips Following Retail Sales Data

The Pound (GBP) is stumbling this morning as the UK’s latest retail sales data underpins recession fears.

UK retail sales came in at -0.9% in September, a significant decline from August’s 0.4% expansion and much worse than forecasts for a more modest 0.2% contraction.

Despite UK wages growth remaining strong, household spending continues to weaken., as high inflation and cost of living pressures continue to sap consumer confidence.

Alex Kerr, an assistant economist at Capital Economics, expressed concerns for the health of the UK’s retail sector:

‘The fall in retail sales volumes in September meant sales volumes fell 0.8% quarter on quarter in the third quarter and suggests that after the 18-month-long retail recession came to an end in the first quarter, the sector may already be back in recession’.

UK inflation held at 6.7% this week, significantly higher than the government’s 2% target. However, the plunge in retail sales leaves investors to speculate that the Bank of England (BoE) is still unlikely to raise interest rates next month.

US Dollar (USD) Muted Following Mixed Fed Comments

The US Dollar (USD) is rangebound this morning, as speeches from Federal Reserve policymakers continue to influence USD movement amid a lack of fresh data.

Many policymakers have adopted a neutral tone amid mixed US data releases throughout the week. Similarly, the potential economic fallout from ongoing Middle Eastern conflict remains unclear, though it is expected to impose significant global repercussions, leaving government officials on tenterhooks as geopolitical developments unfold.

As such, Fed policymakers are approaching rate hike talks with an increasingly tentative tone. Fed Chair, Jerome Powell, echoed recent uncertainty in a speech on Thursday:

‘A range of uncertainties, both old and new, complicate our task of balancing the risk of tightening monetary policy too much against the risk of tightening too little,

Given the uncertainties and risks, and how far we have come, the [Federal Open Market Committee] is proceeding carefully’.

Pound US Dollar Forecast: Fed Speeches to Cap USD Gains?

Amid a lack of notable data, the currency pairing may be vulnerable to risk sentiment. Global markets could continue to face cautious trade, driven by increasing violence in the Israel-Hamas conflict. Investors may continue to opt for safe-haven currencies in place of the riskier Pound as tensions escalate in the Middle East.

Looking ahead, more speeches from Federal Reserve policymakers will take place later today. Ongoing uncertainty surrounding Fed interest rate decisions could temper USD movement. If Fed commentary maintains a dovish bias, rate hike bets could sink. However, if policymakers strike a more hawkish tone, rate hike bets could be boosted, lifting the ‘Greenback’.

Yasmine Arasteh

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