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GBP/USD Forecast: Pound to US Dollar Exchange Rate Muted Ahead of US Retail Sales Data

May 14, 2021 - Written by Frank Davies

Pound (GBP) Exchange Rates Dented by Bank of England Governor’s Comments

The Pound to US Dollar (GBP/USD) exchange rate remained on a softer footing in the wake of comments from Bank of England (BoE) Governor Andrew Bailey.

As Bailey indicated that inflation is unlikely to remain elevated for long this added to expectations of the BoE’s ongoing dovishness.

With investors still seeing little chance of the central bank raising interest rates in the months ahead, especially with key hawk Andy Haldane’s imminent departure, there appeared little reason to favour the Pound.

Although the UK economy still seems on track to recover momentum in the second quarter, with the next phase of easing in lockdown conditions next week, this was not enough to shore up the GBP/USD exchange rate.

US Dollar (USD) Exchange Rates Weaken in Anticipation of Lower Retail Sales Figure

Demand for the US Dollar proved limited ahead of the weekend as the impact of April’s stronger inflation rate continued to fade.

Given the limited chance of the Federal Reserve making any monetary policy move this year there was little room for the US Dollar to make any further gains at this stage.

USD exchange rates could face further selling pressure in the wake of April’s retail sales data, with forecasts pointing towards a slowdown in sales momentum.

After the sharp 9.8% jump in March markets expect to see sales growth slow to just 1% on the month, a dip which could leave the US Dollar on a weaker footing.

Softer industrial and manufacturing production figures may also put pressure on USD exchange rates, with signs expected to show that the sector started the second quarter on a slightly weaker footing.

GBP/USD Exchange Rate Forecast: Signs of Softening US Manufacturing Growth May Weigh on US Dollar

Monday’s New York empire state manufacturing index could offer an additional boost to the Pound to US Dollar exchange rate.

With the index expected to show a modest dip on the month in May the mood towards the US Dollar could sour further.

Unless the US manufacturing sector can demonstrate a continued degree of strength worries over the wider economic outlook could limit the appeal of the US Dollar.

On the other hand, support for the Pound may well fade as anticipation for Tuesday’s set of UK labour market data grows.

As forecasts suggest a fresh uptick in the headline unemployment rate the appeal of the Pound may well diminish, as a weaker labour market could drag on economic activity heading into the second quarter.
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