Pound US Dollar (GBP/USD) exchange rate dips as UK retail sales fall
The Pound US Dollar (GBP/USD) exchange rate has ticked lower this morning, following an unexpected dive in UK retail sales in December.
At the time of writing, GBP/USD is trading at $1.2680, down roughly 0.3% from this morning’s opening rate.
Pound (GBP) weakens as retail sales plunge
The Pound (GBP) is on the back foot this morning, trending lower than the majority of its peers.
This comes following the release of the UK’s retail sales figure for December. The data reported that retail sales tumbled by a shocking 3.2%, far worse than the more modest 0.5% drop expected, and below November’s revised 1.4% increase.
Lisa Hooker, Leader of Industry for Consumer Markets at PwC, commented:
‘The scale of the decline will have surprised many, with retail sales volumes now falling well below pre-pandemic levels. In fact, volumes hit their lowest level since May 2020, right in the middle of the first nationwide lockdown of the pandemic.’
The unexpected plunge in December’s retail consumption has served to undermine the Pound this morning. As retail sales are taken as an indicator of overall economic strength, fresh recession fears have been sparked among GBP investors following the publication.
US Dollar (USD) muted ahead of consumer sentiment index
The US Dollar (USD) is trading in a narrow range this morning against the majority of its peers, as markets await the latest US consumer sentiment index.
With expectations that the preliminary index will drift higher, from 69.7 in December to 70 in January, this may offer the US Dollar support today, should the data print as expected.
In recent days, Jared Bernstein, Chair of the White House Council of Economic Advisers, said:
‘Our theory of the case is that if we can continue to maintain a tight labour market while easing inflation and delivering real wage gains, that recipe should show up in improved sentiment. And we think we’re starting to see that.’
While USD investors await the data, a cautiously upbeat market mood and high US Treasury bond yields are also adding to the US Dollar’s subdued movement.
However, the safe-haven ‘Greenback’ is still posting gains against the struggling Pound.
GBP/USD exchange rate forecast: UK and US PMIs to drive movement?
The US consumer sentiment figure is the main focus for GBP/USD as this week draws to a close. If the reading ticks higher as expected, we could see the US Dollar gain further ground.
There are also a number of upcoming Federal Reserve speeches later this evening. Will hawkish commentary from the central bank officials be able to lift USD even higher against GBP.
Looking further ahead, on Wednesday we can expect both the UK and US manufacturing and services PMI flash figures for January.
With mixed forecasts expected for both countries, the GBP/USD exchange rate could be infused with volatility as markets respond. The UK is anticipated to see a slightly stronger reading, which may give Sterling the edge.
At the beginning of the week, market-moving data is limited for the pairing, which may see the currencies trade on risk dynamics alone.
Should the ongoing conflict in the Middle East continue to sway markets into anxious trade, the US Dollar may rise. However if risk appetite improves, the Pound may triumph over the ’Greenback’.