Pound US Dollar (GBP/USD) Exchange Rate Rebounds from Sales-Induced Slump
The Pound US Dollar (GBP/USD) exchange rate fell sharply this morning after UK retail sales unexpectedly contracted in October. However, a risk-on market mood has helped the pairing recover.
At the time of writing, the GBP/USD exchange rate is trading at $1.2424, having bounced off an earlier low of $1.2373.
Pound (GBP) Recovers despite Shrinking UK Sales
The Pound (GBP) slumped this morning after troubling UK sales figures fuelled recession fears.
British retail sales contracted by 0.3% in October, rather than recovering 0.3% as economists had expected. In addition, September’s poor sales figure was revised even lower, from -0.9% to -1.1%.
Retail sales fell 0.3% in October 2023, following a fall of 1.1% in September.
When we look more broadly, sales fell 1.1% in the three months to October when compared with the previous three months.
➡️ https://t.co/kdVkeib2AC pic.twitter.com/Lr0o9RIodG
— Office for National Statistics (ONS) (@ONS) November 17, 2023
Many analysts have today warned that the shock drop in sales volumes has increased the likelihood that the UK could slip into a recession this winter.
In a research note, economist Sandra Horsfield of Investec said:
‘In any case, we remain of the view that a winter recession looks likely, as higher interest rates gradually feed through and take their toll on household and business finances.’
Sterling dropped sharply immediately after the publication of the sales data. However, it has since managed to bounce back against some peers thanks to an upbeat market mood supporting the increasingly risk-sensitive currency.
US Dollar (USD) Struggles amid Risk-On Mood
Meanwhile, the safe-haven US Dollar (USD) has relinquished the morning’s gains against the Pound, as the risk-on mood saps demand for the ‘Greenback’.
Markets have become increasingly upbeat in recent days amid expectation that global borrowing costs have peaked.
With inflation seemingly returning to normal levels, central banks in the US, UK and Eurozone may have completed their rate hiking cycles. This is boosting optimism for the world economic outlook.
In particular, investors are hopeful that the Federal Reserve has finished tightening policy, amid cooling US inflation and signs of a slowing labour market. This is adding to the pressure on USD exchange rates.
GBP/USD Exchange Rate Forecast: Central Bank Speakers to Fuel Volatility?
Looking ahead, Bank of England (BoE) policymaker Megan Greene is due to deliver a speech later this afternoon.
One of the more hawkish rate-setters at the BoE, Greene recently expressed concerns about the persistence of UK inflation and pushed back on rate cut bets. More comments like this today could help to shore up the Pound, as they indicate that UK interest rates may remain higher for longer.
However, if Greene talks about the possibility of a recession, in the wake of today’s retail sales data, Sterling could stumble.
Two rate-setters from the Federal Reserve are also set to speak later today. Policymakers Austan Goolsbee and Michael Barr are both relatively dovish, so their comments could dent USD.
In the meantime, risk appetite could also impact the Pound US Dollar pair. If the tone remains upbeat, we could see GBP/USD recoup more of the morning’s losses.