Pound US Dollar Exchange Rate News: GBP/USD Fluctuated as Strong UK Retail Sales Offset by Souring Market Mood

May 9, 2023 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Fluctuated as Strong UK Retail Sales Offset by Souring Market Mood

Pound (GBP) Supported by Strong Retail Growth

The Pound (GBP) found itself climbing against many of its peers on Tuesday in the wake of stronger-than-expected retail sales figures from the British Retail Consortium (BRC). Against expectations of a 4.9% YoY increase in April, figures showed sales increased 5.2% compared to April last year.

With predictions of an easing rate of growth compared to last month’s surprise increase, consumers showed resilience in the face of the cost-of-living crisis as sales increased for the fourth consecutive month. However, despite the spike in sales figures, sales volumes continue to decline as inflationary pressures meant consumers were getting less for their money. Helen Dickinson, Chief Executive at the BRC, commented:

‘While retail sales grew in April, overall inflation meant volumes were down for both food and non-food as customers continued to adjust spending habits. Clothing sales underperformed as the poor weather left customers thinking twice before decking out their summer wardrobe.’

Elsewhere, expectations of the Bank of England (BoE) continuing their monetary policy beyond the next meeting are supporting the Pound. Goldman Sachs are predicting that due to inflation remaining sky high, the central bank will be left with little choice but to continue their tightening cycle. The US investment group expect the BoE’s interest rate level to peak at 5% in the summer. Ibrahim Quadri, said of the situation:

‘While it is possible that the monetary policy committee might want to slow the hiking to a quarterly pace after the May meeting, we remain sceptical that this will be feasible amid ongoing inflationary pressures.

‘We therefore expect the monetary policy committee to continue to hike in 25 basis point steps until reaching a terminal rate of 5% in August.’

US Dollar (USD) Propped up by Souring Market Mood

Meanwhile, the US Dollar (USD) managed to stay afloat despite pared interest rate hike expectations and the diverging policies between the Federal Reserve and other major central banks.

Last week’s stronger-than-expected labour market data failed to buoy investors, despite non-farm payrolls increasing 253,000 in April, far higher than an expected 179,000. However, with speeches from Fed policymakers on Tuesday, that labour market data could propel the ‘Greenback’ higher if a hawkish tone is struck.

Elsewhere, with China’s stuttering economic recovery showing global demand slowing, the risk-averse market helped support the safe-haven US Dollar. Imports in the world’s second largest economy unexpectedly dropped by 7.9% YoY in April, highlighting slipping demand. Iris Pang, Chief Economist for ING, commented:

‘It seems increasingly clear that the global economic slowdown is weighing on China’s exports.’

But keeping a firm lid on any further gains are increased odds for a pause from the Fed. The CME Group FedWatch Tool are pricing in an 88% chance that the central bank will leave the cash rate unchanged in June, bringing a halt to a potential 11th straight hike.

GBP/USD Exchange Rate Forecast: Easing US Inflation to Dent the US Dollar?

Looking ahead, the Pound US Dollar exchange rate could see further movement with the latest inflation data for the US. With expectations of headline consumer inflation set to remain at 5%, and core inflation to ease further, rate hike expectations could be pared even further, potentially dragging the ‘Greenback’ lower.

In the meantime, speeches from Fed policymakers could influence the pairing. Any hints of further tightening in the wake of stronger-than-expected jobs data from last week could spur the US Dollar.

Elsewhere, the Pound could trade on market sentiment in lieu of economic data as investors await the interest rate decision from the BoE on Thursday.

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