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GBP/USD Outlook - Pound to Dollar Exchange Rates Slip on Resurgent US Retail Sales

April 18, 2019 - Written by Frank Davies

A strong resurgence in US advance retail sales kept the Pound Sterling to US Dollar exchange rate on a weaker footing ahead of the Easter weekend.

As sales surged 1.6% on the month in March investors were encouraged to buy back into the US Dollar, with higher levels of consumer spending pointing towards greater economic confidence.

The continued improvement in initial and continuing jobless claims added to the positive outlook of USD exchange rates on Thursday afternoon as the US labour market tightened further.

This helped to overshadow a disappointing Philadelphia Fed business outlook index, which eased from 13.7 to 8.5 as escalating trade tensions limited sentiment.

Improved UK Retail Sales Failed to Shore up Pound Sterling US Dollar (GBP/USD) Exchange Rate

Although UK retail sales data also showed a solid improvement, accelerating 6.2% on the year, this was not enough to shore up Pound Sterling demand.

The impact of the positive data was limited thanks to the distorting effect of the previous year’s March data, which was constrained by adverse weather conditions.

Investors were also discouraged by the fact that UK credit card defaults rose sharply in the first quarter, highlighting the continued reliance on credit among domestic households.

All in all, confidence in the outlook of the UK economy diminished over the course of the day, leaving GBP exchange rates lacking in market support.

Stalling Brexit Discussions to Keep GBP Exchange Rates Under Pressure

The ongoing lack of progress on the issue of Brexit looks set to keep the Pound on the back foot in the near future, with MPs failing to make any fresh breakthroughs.

After discussions between the Labour leadership and Theresa May stalled markets have braced for an extended period of uncertainty over the ultimate shape of the UK’s future relationship with the EU.

Unless there are signs of the two sides moving towards a mutually agreeable compromise the appeal of the Pound may remain muted for the foreseeable future.

Without further concrete signs of resilience within the UK economy any support for the GBP/USD exchange rate is likely to prove limited, given the long shadow cast by domestic political developments.

Improved Chicago Fed Activity Index Set to Boost US Dollar (USD) Exchange Rates

The US Dollar could find a fresh rallying point on Monday if March’s Chicago Fed national activity index picks up on the month as forecast.

Any evidence that the US manufacturing sector is recovering its lost momentum may give USD exchange rates a solid boost, in spite of lingering trade worries.

On the other hand, another underwhelming index could see the US Dollar trending lower across the board at the start of next week.

If market risk appetite picks up further this may also weigh on USD exchange rates, with investors likely to sell out of the US Dollar in favour of higher-yielding assets.
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