Pound Sterling US Dollar (GBP/USD) Exchange Rate Softens as Risk Aversion Dominates
As the Turkish financial crisis continued to dominate market sentiment the Pound Sterling to US Dollar (GBP/USD) exchange rate remained under pressure.
Fears over the prospect of contagion spreading from the Turkish banking system encouraged investors to pile into safe-haven assets, boosting the US Dollar (USD) against its rivals.
Even after the Central Bank of the Republic of Turkey (CBRT) announced measures to boost liquidity and increase financial stability this failed to ease market worries.
With the future of the Turkish economy looking rather insecure as market confidence plunges USD exchange rates could continue to benefit from risk aversion in the days ahead.
While trade relations between the US and other allies have continued to deteriorate this has failed to put any particular pressure on the US Dollar.
Rising UK Inflation to Boost GBP/USD Exchange Rate
Wednesday’s UK consumer price index data could offer the Pound Sterling to US Dollar (GBP/USD) exchange rate a rallying point, however.
Forecasts point towards a modest uptick in inflationary pressure on the year, with the headline consumer price index expected to strengthen from 2.4% to 2.5%.
This would give Pound Sterling (GBP) a boost against its rivals, encouraging speculation that the Bank of England (BoE) will remain on a hawkish policy bias.
If inflation fails to pick up, though, this could drag the GBP/USD exchange rate lower as confidence in the domestic outlook weakens.
Uncertainty surrounding Brexit is likely to remain a negative influence on the Pound for the foreseeable future, meanwhile.
As analysts at Nordea commented:
‘Odds of a hard and sudden Brexit are on the rise and the chance of a new referendum or a material prolongation of the negotiation-process the same, while the likelihood of an orderly exit by March 29 seems to vanish by the day. This leaves a tricky scenario ahead for Bank of England, as they try to limit the downside in GBP due to inflation considerations.’
Pound Sterling US Dollar (GBP/USD) Exchange Rate Forecast to Benefit From Weaker US Data
The Pound Sterling to US Dollar (GBP/USD) exchange rate could also find support on the back of the latest US advance retail sales figure.
Growth in retail sales is forecast to ease from 0.5% to just 0.1% in July, signalling a weakening in domestic confidence.
This could dent the appeal of the US Dollar, adding to market concerns regarding the underlying health of the world’s largest economy.
Evidence that consumers are taking a more cautious view may knock USD exchange rates off their recent bullish trend, undermining bets that the Federal Reserve will continue a more aggressive pace of monetary tightening.
Any weakness in US data could give the Pound Sterling to US Dollar (GBP/USD) exchange rate some upside momentum, especially if the manufacturing sector shows signs of a slowdown.