GBP USD Exchange Rate Trended Higher After Bullish Retail Sales

March 23, 2017 - Written by Ben Hughes

STORY LINK GBP USD Exchange Rate Trended Higher After Bullish Retail Sales

An unexpectedly sharp uptick in UK retail sales helped to boost the Pound US Dollar exchange rate, giving investors fresh reason to pile into Sterling.

GBP Boosted by Strong Retail Sales

Sales were found to have leapt 1.4% on the month in February, making up for January’s -0.5% contraction.

This offered fresh evidence that consumer confidence and spending has largely held up at the start of the year, even as inflation continued to pick up.

However, as inflation has begun to outpace wage growth this positive mood seems unlikely to last for much longer.

Given that robust levels of consumer spending have been supporting UK economic growth in the wake of the Brexit vote this could exacerbate the downside bias of the Pound (GBP) in the coming months.

As James Smith, economist at ING, noted:

‘Fuel and food prices have soared post-referendum, mainly owing to the fall in the value of the pound. Meanwhile, hiring intentions have fallen in the face of Brexit uncertainty, and that is likely to weigh on the outlook for wage growth.’

Mounting Trump Doubts Weighed on USD

Demand for the US Dollar (USD) has been limited, meanwhile, thanks to market jitters ahead of a critical vote on the Republican healthcare bill.

Investors are worried that Trump could face defeat, bringing into question his ability to pass promised economic reforms on which much of the ‘Greenback’s recent strength has been based.

The GBP USD exchange rate thus remained on a bullish trend in spite of a sharp uptick in US new home sales, which rose 6.1% on the month in February.

This offered some reassurance in the wake of a weaker-than-expected existing home sales figure, although signs continue to point towards the domestic housing market starting to cool.

With the Federal Reserve continuing to adopt a more cautious note on monetary policy, suggesting that interest rates are likely to rise at a slower pace, the US Dollar has struggled to find any particular support.

GBP USD Exchange Rate Forecast: More Fed Commentary in Focus

Forecasts point towards a modest uptick in the BBA loans for house purchase figure for February, which could keep the Pound on a stronger footing ahead of the weekend.

However, with the formal triggering of Article 50 drawing nearer an element of Brexit-based uncertainty is likely to limit the upside potential of Sterling in the near term.

The mood towards the US Dollar could remain bearish, meanwhile, if the latest durable goods orders data suggests any weakening in consumer confidence.

Commentary from Federal Open Market Committee (FOMC) vice-chair William Dudley could also provoke some volatility for the GBP USD exchange rate, particularly if the policymaker adopts a more hawkish view.

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TAGS: Pound Dollar Forecasts