Pound US Dollar (GBP/USD) Exchange Rate Bolstered by Optimistic Picture for UK Retail Sector

March 27, 2023 - Written by John Cameron

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Bolstered by Optimistic Picture for UK Retail Sector

Pound US Dollar (GBP/USD) Exchange Rate Rises as UK Retail Data Surprises to the Upside

The Pound US Dollar (GBP/USD) exchange rate climbed on Monday amid a risk-on market mood. Optimistic UK retail sector data prompted gains in the pairing.

Bets on a softer pace of rate hikes from the Federal Reserve added to GBP/USD’s upward momentum.

At time of writing the GBP/USD exchange rate was at around $1.2270, which was up roughly 0.3% from that morning’s opening figures.

Pound (GBP) Boosted by Retail Sales Data

The Pound (GBP) found support from optimistic retail sector data on Monday. Signs of stability in the European banking sector also increased investor confidence in Sterling.

The Confederation of British Industry’s (CBI) latest distributive trades survey reported a less-than-expected fall in March’s sales volumes. Sales were reported at +1 versus the expected fall to -6.

CBI Principal Economist Martin Sartorius said:

‘It's encouraging that activity in the retail sector showed signs of stabilising after a challenging winter. This resilience has helped inspire some spring shoots of optimism, with firms expecting an increase in sales for the first time since last September.’

US Dollar (USD) Falls as Risk Appetite Returns to Markets

The US Dollar (USD) came under pressure from a return of risk appetite on Monday. The safe-haven ‘Greenback’ made steady losses over the course of the day, although a rally in bond yields underpinned USD.

Expectations of a softer pace of policy tightening from the Federal Reserve also dented enthusiasm for the US Dollar. At the central bank’s interest rate decision last week, Fed Chair Jerome Powell signalled that a pause in policy tightening may be on the cards in the coming months.


James Knightley, Padhraic Garvey, and Francesco Pesole of ING had the following to say on the Fed’s forward path:

‘The Federal Reserve has raised the policy rate by 25bp, but signalled it 'may' only hike once more. This is a little more dovish than anticipated, but the Fed is not expecting recent banking woes to significantly derail the economy.’

GBP/USD Exchange Rate Forecast: Will GDP Data Indicate that UK Dodged 2022 Recession?

Multiple speeches from BoE Governor Andrew Bailey could lent support to the Pound this week if he signals further rate hikes. Bailey is set to speak later on Monday and on Tuesday.

On Friday, an upward revision in fourth quarter GDP data could prompt additional gains in GBP. The final reading of GDP growth data for the final quarter of 2022 is set to be revised to 0%, indicating a stagnation in growth. If the data prints as expected, it may bolster confidence in the UK economy having dodged a recession last year.

With no other significant data releases for the Pound this week, the currency may be affected by any domestic headwinds.

The US Dollar could come under pressure on Tuesday and Wednesday following testimony from Fed policymaker Michael Barr. Markets will be looking to Barr for any hints of the Fed’s forward policy. Previously, Fed Chair Jerome Powell has signalled that the central bank may be nearing the end of its policy tightening.

The latest jobless claims figures on Thursday could help USD to reverse some of these losses, however. Claims for the week ending 25 March are expected to remain close to previous lows. Markets are likely to see the data as an indication of a still-tight labour market.

Also on Thursday, an expected downward revision in in fourth quarter GDP growth figures could counter any gains for the US Dollar. The data could add to expectations of a hard landing for the US economy.

The most significant data release for USD in the coming week will be the last reading of the core PCE price index. The Fed’s preferred measure of inflation is expected to cool in February. This could add to bets on a softer pace of rate hikes from the Fed and weigh on USD.

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