Pound US Dollar (GBP/USD) Exchange Rate Fluctuates amid Escalations with Russia

March 14, 2018 - Written by Toni Johnson

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Fluctuates amid Escalations with Russia

Sterling (GBP) Exchange Rates Flounder as UK Moves to Expel 23 Russian Diplomats

The Pound US Dollar (GBP/USD) exchange rate fluctuated on Wednesday, supported by yesterday’s upbeat Spring Budget statement and revised growth forecasts from UK Chancellor Philip Hammond, but floundering later into the day as UK Prime Minister Theresa May announced a range of punitive measures against Russia in the wake of their failure to explain the use of a nerve agent on an ex-spy.

Britain will expel 23 Russian diplomats in response to a nerve toxin attack on former Russian double agent Sergei Skripal and his daughter Yulia in southern England, with the Prime Minister arguing that Russia’s response – when given the opportunity to explain how the use of the toxin occurred – was entirely insufficient.

‘Their response demonstrated complete disdain for the gravity of these events’, May said in a statement to Parliament.

‘There is no alternative conclusion, other than that the Russian state was culpable for the attempted murder of Mr Skripal and his daughter, and for threatening the lives of other British citizens in Salisbury, including Detective Sergeant Nick Bailey’.

The Prime Minister also promised to freeze Russian state assets with evidence that they may be used to threaten life or property of UK nationals or residents, as well as revealing a slew of other legislative proposals developed to counter potential threats or escalations from Russia.

This news limited the Pound, with markets concerned that tit-for-tat sanctions from Russia could pose a severe threat to the UK’s extensive ties, particularly BP’s notable 20% stake in the Russian energy giant Rosneft.

US Retail Sales Disappoint, USD Exchange Rate Struggles to find Purchase

The US Dollar encountered turbulence of its own today as markets responded to a worse-than-expected US retail sales reading.

According to the US Census Bureau, US retail sales dropped for the third consecutive month in February, with a month-on-month reading of -0.1%, down from the forecast of 0.3%.

This was largely due to households cutting back on the purchase of big-ticket items like motor vehicles.

In other, slightly better news, underlying producer prices increased in solid form in February, with the costs of services such as hotel accommodation, hospital care and airline fares all rising.

This news boded well for the possibility of a rate hike from the US Federal Reserve next week, though recent sluggish growth in US wages could temper the possibility of a hawkish move.

Whilst the rise in producer prices gave the ‘Greenback’ a small amount of support, it was not enough to knock GBP/USD out of a rather restricted range.

GBP/USD Exchange Rate Forecast: UK Inflation, Wage Growth and BoE Rate Hike Prospects

This week is incredibly sparse in regards to UK data releases, though next week the Pound US Dollar (GBP/USD) exchange rate could see volatility in reaction to the UK’s highly anticipated inflation, and wage growth readings.

Markets currently expect inflation in the UK to slip from 3% to 2.9% in February, a very slight contraction that would still put consumer price inflation far above the Bank of England’s (BoE) target range.

Indeed, barring a more significant drop the market hype for a BoE rate rise in May should continue, though another notable factor will be UK average earnings, and the unemployment rate.

Beyond this, markets will continue to focus on the situation with Russia and indeed US President Donald Trump’s tariff measures on steel, with retaliatory measures on either front liable to threaten the Pound’s upward potential.

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TAGS: Pound Dollar Forecasts