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Pound US Dollar Exchange Rate News: GBP/USD Wavers as Political Uncertainty and Poor Retail Sales Weigh on the Pound

June 24, 2022 - Written by John Cameron

Pound (GBP) Subdued as Poor Retail Sales Compound Inflationary Pressures

The Pound (GBP) is muted today as the Office for National Statistics (ONS) released the retail sales for the month of May, where the UK saw a drop of 0.5%, or 0.7% excluding fuel. As the cost-of-living rises, household budgets have been hit hard, with consumers reining in their spending.

The biggest drop came in food stores which saw a fall of 1.6% MoM as soaring food prices continue to take their toll. In the three months leading up to May, retail sales have fallen by 1.3%, continuing the downward trend since 2021.

Heather Bovill, ONS deputy director for surveys and economic indicators, commented on the downbeat sales figures:

‘Feedback from supermarkets suggested customers were spending less on their food shop because of the rising cost of living. More workers returning to the office may have contributed to increased fuel sales this month while shoppers buying outfits for summer holidays helped boost clothing sales.’

Further weighing on the Pound is the latest blow to Boris Johnson’s premiership as the Conservatives lost two key seats in the byelections yesterday. Labour won Wakefield as the Lib Dems claimed the long-held Tory seat in Tiverton and Honiton.

Adding to the political turmoil, Conservative chair Oliver Dowden resigned in the face of the byelection defeat. Citing the latest in a string of devastating results for the Tories, Dowden said:

‘Our supporters are distressed and disappointed by recent events, and I share their feelings. We cannot carry on with business as usual.
Somebody must take responsibility and I have concluded that, in these circumstances, it would not be right for me to remain in office.’

Continued political uncertainty is likely to weigh on the Pound as Boris Johnson’s future is brought into question once again.

US Dollar (USD) Softens as Market Mood Sours

The US Dollar (USD) is trading a narrow range today as Fed speeches fail to rally investors amidst the growing recession fears.

In his speech before the House Financial Services Committee yesterday, Federal Open Market Committee (FOMC) Chairman Jerome Powell reiterated the Fed’s ‘unconditional’ commitment in reining in inflation, despite admitting that sharp rate hikes could trigger a recession.

Chris Williamson, Business Economist at S&P Global Market Intelligence, said of the downbeat mood surrounding the US economy:

‘Businesses have become much more concerned about the outlook as a result of the rising cost of living and drop in demand, as well as the increasingly aggressive interest rate path outlined by the Federal Reserve.

Business confidence is now at a level which would typically herald an economic downturn, adding to the risk of recession.’

With markets growing more concerned with a looming recession, investors continue to wait on central bank’s strategies for combating inflation. The appeal of safe-haven currencies could grow in the coming weeks, providing a welcome boost to the US Dollar.

GBP/USD Exchange Rate Forecast: BoE Speech to Inspire Pound Investors?

With no major data for the rest of the session, all eyes will be on BoE MPC member Jonathan Haskel as could give further clues as to how the central bank will continue its fight on inflation. Renowned for his hawkish stance on monetary policy, a boost for the Pound could be seen if his latest comments reflect that.

Elsewhere, with fears of a global recession mounting, the continuing risk-averse market sentiment could provide a tailwind for the US Dollar as safe-haven currencies become more attractive.

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