Pound US Dollar Exchange Rate News: GBP/USD Wavered on Stuttering UK Retail Sector

June 6, 2023 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Wavered on Stuttering UK Retail Sector

Pound (GBP) Underpinned by Elevated Rate Hike Bets

The Pound (GBP) started the day on the back foot as the British Retail Consortium (BRC) reported underwhelming retail sales growth.

The BRC revealed that sales had only risen by 3.7% on a yearly basis, compared to last month’s 5.2% growth YoY in March. Despite still climbing, it represented the lowest level of expansion in seven months. Soaring food prices undermined the three bank holidays and saw consumer spending reduced on non-essential items. Helen Dickinson, Chief Executive of the British Retail Consortium (BRC) said of the retail sector:

‘With consumer confidence still recovering from record depths, and continued tightening of household incomes, we are unlikely to see substantial sales growth in the coming months. But, with signs that inflation has possibly peaked, retailers are hopeful that confidence will continue to improve.’

However, with inflation still stubbornly high, and core inflation proving sticky, expectations of the Bank of England (BoE) raising interest rates beyond the June meeting could be preventing Sterling further sliding.

US Dollar (USD) Undermined by Stuttering Economy

Meanwhile, the US Dollar (USD) found moderate strength against most of its peers despite growing expectations of a pause from the Federal Reserve.

With the latest inflation data coming up next week, the markets could be pricing in a pause. Hot on the heels of worse-than-expected services PMI, a significant loss of momentum in the service sector added to the fallout from a stuttering manufacturing sector. These issues were compounded by a further contraction in employment in services amid easing inflationary pressures.

With an improving market mood, elevated by the US debt ceiling being raised, the safe-haven US Dollar also saw demand sap from an improved risk appetite. With rate hike bets being pared, the ‘Greenback’ could come under increased pressure until the latest inflation reading next week. Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE at ING, commented:

‘However, the US data calendar is now pretty quiet for the rest of this week and the market may well hold positions into next week’s May CPI data and the June 14th FOMC meeting.’

GBP/USD Exchange Rate Forecast: Policy Divergence to Boost the Pound?

Looking ahead, the Pound US Dollar exchange rate could be left vulnerable to market dynamics and central bank expectations. With a thin trading calendar for the rest of the week for both currencies, the diverging policies between the BoE and Fed could be the main driver.

With mounting expectations of a pause from the Fed, USD investors could be deterred. Whereas the BoE still has sky-high inflation to battle, with the markets confident of further tightening. Goldman Sachs made comments last week that the BoE could in fact overtake the Fed in interest rate hikes as they expect the cash rate to reach 5.5% before the autumn. Sterling could climb on elevated rate hike bets.

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TAGS: Pound Dollar Forecasts