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Pound US Dollar Exchange Rate News: GBP/USD Slips on Disappointing UK Retail Sales

January 21, 2022 - Written by John Cameron

GBP/USD Stumbles Following Disappointing UK Retail Sales

The Pound US Dollar (GBP/USD) exchange rate is facing headwinds in the beginning of today’s session in response to discouraging UK retail sales.

At the time of writing, the GBP/USD exchange rate is trading at approximately $1.3570, roughly down 0.2% from today’s opening levels.

Pound (GBP) Loses Ground on Abysmal Retail Sales Release

The Pound (GBP) is dropping against the US Dollar (USD) at the beginning of today’s session as the UK’s most recent retail sales undershoot expectations.

December’s figures printed at -3.7%, a significant decrease from November’s 1% and below forecasts of smaller 0.6% contraction.

This is the steepest decline since January 2021.

December’s disappointing data is largely due to strong retail sales in October and November. During this time, Omicron spread, causing people to worry about supply chain issues and the severity of the variant, which, in turn, led to early Christmas shopping.

The largest decline was in non-food stores which saw a fall of 7.1%, and auto fuel which slipped 4.7% in response to more people working-from-home.

ING’s Developed Markets Economist James Smith, said:

‘The latest UK retail sales figures for December don’t make for pleasant viewing. Sales fell by almost 4% compared to November, even after fuel sales are excluded (which themselves declined due to increased work-from-home).

‘But as is often true with the retail data, some perspective is required. Some of this fall is undoubtedly linked to Omicron, given footfall appeared to have been a little lower in the run-up to Christmas.’

Overall, retail sales were above the pre-pandemic levels of February 2020 by 2.6% and 2021 sales were up by 5.1% - the highest in 18 years.

Meanwhile, the political turmoil surrounding Boris Johnson, the UK’s Prime Minister, is further weighing on the Pound.

Despite this, the Bank of England (BoE) is unlikely to change its current position regarding an expected rate hike in February, and the announcement of easing coronavirus restrictions, are both capping GBP’s losses.

US Dollar (USD) Climbs amid Risk-Off Mood

Meanwhile, the US Dollar is rising against the Pound amidst risk-off market sentiment which is boosting the appeal of the safe haven currency.

This is being driven by cautious investors as they await next week’s Federal Reserve meeting following reports that the Fed may tighten policy faster than initially thought.

As one analyst said, ‘a question for us is whether the Fed will signal the potential for a March rate rise’, some investors are already convinced that the Fed may increase interest rates in a bid to fight high inflation.

Currently, there are projections that the Fed may hike rates as many as four times throughout the year.

In addition, the Ukraine-Russia conflict is further causing a bearish market which is supporting the ‘Greenback’.

GBP/USD Exchange Rate Forecast: PMI Releases to Influence USD and GBP

Looking ahead, the publication of the UK’s latest PMI figures are likely to act as a key catalyst of movement in the Pound US Dollar (GBP/USD) exchange rate at the start of next week.

On Monday, Sterling could receive a boost if the UK’s latest PMI figures point to an improvement in private sector growth at the start of 2022. January’s composite PMI is predicted to increase from 53.6 to 53.8, and the services PMI which is expected to improve from 53.6 to 53.7.

Sterling is also likely to be influenced by ongoing Brexit negotiations and the political jitters surrounding Boris Johnson’s premiership.

Meanwhile, Markit will also publish its latest US PMI figures at the start of next week. This could exert some pressure as the manufacturing PMI is forecast to print at 56.7, down slightly from the previous 57, as well as the service PMI which is forecast to print at 57.1, a marginal slip from 57.6.

Elsewhere, the ‘Greenback’ is also likely to be impacted by the global developments, surrounding issues such as coronavirus and the Russia-Ukraine conflict.

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