January 17, 2020 - Written by John Cameron
STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Dips, UK Retail Sales Fall in December
GBP/USD Exchange Rate Eases as BoE Rate Cut Fears Rise on Poor UK Retail Sales
The Pound US Dollar (GBP/USD) exchange rate dipped today, with the pairing currently trading around $1.304 after December’s UK retail sales unexpectedly fell by -0.6% month-on-month, while the year-on-year figure fell below forecasts to 0.9%.
Quantitative Economist at UBS, Filip Lipev, commented:
‘The UK seems to be heading to a rate cut on Jan 30, after retail sales disappoint amid increasingly dovish rhetoric by MPC members. Next week’s PMI likely to be important, too, though a consensus seems to exist that quick and aggressive action is needed to arrest the slowdown.’
Last month’s retail sales have heightened the likelihood of a rate cut from the Bank of England (BoE), leaving the GBP/EUR exchange rate subdued today as the UK’s economic outlook dims.
Brexit also continues to remain a concern for Pound Sterling investors, after European Commission, President Ursula van der Leyen, said that, within Prime Minister Boris Johnson’s end-of-year timeframe, a UK-EU trade deal was ‘impossible’ to negotiate.
USD/GBP Exchange Rate Rises as US Housing Starts Rise in December
The US Dollar (USD) edged higher against the Pound (GBP) today following better-than-expected US housing starts in December, which rose from 1.375 million to 1.608 million. The report has provided a boost to the ‘Greenback’ as the outlook for the US economy improves.
USD has also benefited from its safe-haven status today after it was announced that China’s economic growth had hit a near 30-year low in 2019.
This follows this week’s signing of the US-China ‘phase one’ trade deal, which has provided some stability for the US Dollar as geopolitical tensions between the world’s two largest economies continue to de-escalate.
Robert Lighthizer, US President Donald Trump’s top trade advisor, was more balanced in his analysis, however:
‘Are we in an ideal spot? No. Is this a massively good first step? Yes.’
In US economic news, today will see the release of the preliminary Michigan Consumer Sentiment Index for January, which is forecast to hold at 99.3. Any improvement, however, would prove USD-positive.
GBP/USD Outlook: Could Further Brexit Uncertainty Weaken the Pound?
Monday will see US markets closed for the bank holiday in respect of Martin L. King’s birthday.
Instead, USD traders will be looking ahead to Wednesday’s publication of the US home figures. Any signs of improvement in the housing sector providing a boost for the ‘Greenback’.
Pound (GBP) investors will be looking ahead to Tuesday’s release of the UK ILO unemployment rate report for November. However, as this is expected to rise by 3.9% we could see the GBP/USD exchange rate ease.
Brexit will continue to drive the GBP/USD exchange rate next week, with any further signs of obstacles to a UK-EU trade deal emerging this year providing Pound-negative.
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