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Pound Sterling US Dollar (GBP/USD) Exchange Rate Recovers from One-Month Low as UK Retail Sales Strengthen

February 15, 2019 - Written by Frank Davies

UK Retail Sales Boost Lifts Pound Sterling US Dollar (GBP/USD) Exchange Rate

A better-than-expected uptick in January’s UK retail sales data helped to lift the Pound Sterling to US Dollar (GBP/USD) exchange rate from its one-month low.

As sales picked up 1.2% on the month this gave investors cause for confidence, suggesting that consumers remain unfazed by Brexit jitters.

Analysts at TD Securities commented:

‘Today's data confirms continuation of a theme we've seen over the past couple of years: that the consumer continues to be unaffected by Brexit uncertainty, while firms are cutting back on their investments.’

However, as confidence in Theresa May’s ability to secure support for a Brexit deal deteriorated in the wake of her latest parliamentary defeat this limited the upside potential of the GBP/USD exchange rate.

US Dollar (USD) Exchange Rates Struggle to Recover after Weak Retail Sales

Demand for the US Dollar, meanwhile, proved relatively limited in the wake of Thursday’s unimpressive advance retail sales data.

After the sharp contraction in sales seen in January confidence in the outlook of the US economy naturally diminished, leaving USD exchange rates on a weaker footing.

As Federal Reserve policymakers continued to adopt a more cautious tone on the economy and policy outlook this gave investors limited incentive to favour the US Dollar over its rivals.

An increased sense of risk appetite also weighed on the safe-haven currency, with markets taking encouragement from the latest US-China trade talks.

While no breakthrough ultimately materialised this week investors were still inclined to take a positive outlook.

Resilient Consumer Confidence to Boost US Dollar (USD) Exchange Rates

The mood towards the US Dollar could improve on Friday afternoon, however, if the University of Michigan consumer sentiment index picked up in February.

After the weak retail sales data investors are hoping to see signs that confidence strengthened solidly this month, improving the chances of a future recovery in consumer spending.

If consumers shake off the impact of the recent government shutdown this could weigh heavily on the GBP/USD exchange rate.

Signs that the shutdown’s negative impact on the US economy is likely to prove more limited in nature should help the US Dollar to return to a stronger footing against its rivals.

A fresh disappointment, though, would leave USD exchange rates exposed to further selling pressure.

Easing UK Wage Growth to Limit Pound Sterling (GBP) Exchange Rate Upside

Tuesday’s UK average weekly earnings figures could put a fresh dampener on the Pound if wage growth shows signs of faltering.

Any easing in wage growth would give the Bank of England (BoE) additional incentive to leave interest rates on hold for longer, further reducing the odds of a 2019 rate hike.

However, as wages still look set to outpace inflation in the near future any downside pressure on the GBP/USD exchange rate could prove limited.

Brexit developments, on the other hand, may provoke significant Pound volatility as markets continue to weigh up the odds of the UK leaving the EU without a deal in March.
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