Pound US Dollar Exchange Rate News: GBP/USD Slumped Despite Uptick in UK Retail Sales

August 19, 2022 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Slumped Despite Uptick in UK Retail Sales

Pound (GBP) Plunged Despite Surprising Retail Sales

The Pound (GBP) plummeted against many of its rivals on Friday as the weight of the cost-of-living crisis wiped out any positivity from better-than-expected retail sales.

A surprising rise of 0.3% in retail sales compared to an expected 0.2% decline did little to boost the Pound. Mainly driven by online sales and promotions, non-food purchases such as clothing continued to decline as consumers are becoming increasingly concerned over the cost of living. However, analysts threw cold water on any positivity as the spike in retail sales is not sustainable and could well see a return of declining figures as the cost-of-living crisis continues to restrict consumer spending.

Meanwhile, consumer confidence has hot rock bottom as the latest GfK report revealed the lowest level of confidence since the survey begun in 1974. The growing pessimism around the economy and personal finances has led to confidence stoop lower than during any of the four major recessions of the past 50 years. Joe Staton, GfK’s Client Strategy Director, said of the survey:

‘A sense of exasperation about the UK’s economy is the biggest driver of these findings. Our sub-measure on the general economy over the past year has decreased month-on-month since December 2021.’

Elsewhere, the ‘summer of discontent’ rumbles on as rail and tube strikes commenced on Friday. Transport Secretary Grant Shapps has accused union bosses of not presenting offers to members, threatening to impose strike reforms as he claims, ‘it’s time for union bosses to get out of the way’. Mick Lynch, General Secretary of the RMT, apologised to those affected by the strikes but maintained his position that workers need to protect themselves against the unrelenting inflationary pressures. He said:

‘So we’re making that stand on behalf of our members, but many other workers in Britain are suffering some very similar things and you’re going to see a wave of this type of action.

‘We can’t stand by and watch our conditions be chopped up. Otherwise, it’ll just be a race to the bottom for all British workers.’

US Dollar (USD) Buoyed on Hawkish Fed Comments

The US Dollar (USD) enjoyed renewed strength against its rivals on Friday as the US Dollar Index climbed to its highest level in a month.

Hawkish rhetoric is bolstering interest rate hike bets, despite US inflation softening. After particularly dovish comments from Fed chair Jerome Powell in the wake of the US inflation reading and fears of a US recession, recent speeches have impressed USD investors. Boosted by strong data, the general consensus of the US economy being resilient enough to withstand further rate hikes has buoyed the US Dollar. Several Fed policymakers have confirmed their support of a 50bps or 75bps rate hike. San Francisco Fed President Mary Daly said:

‘The markets have a lack of understanding, but consumers understand that rates won't go down right after they go up.’

Meanwhile, a downturn in global market sentiment is boosting the ‘Greenback’ as safe-haven flows resume in the wake of China’s slowing economic recovery and the mounting recession fears in Europe.

GBP/USD Exchange Rate Forecast: Further Hawkish Fed to Bolster the US Dollar?

Looking ahead, the Pound US Dollar exchange rate could plunge even further as a speech from Richmond Fed President Tom Barkin could echo his colleagues hawkish remarks.

Elsewhere, relentless domestic woes are likely to keep a lid on the Pound.

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