Retail Sales Acceleration Helps Pound Sterling US Dollar (GBP/USD) Exchange Rate Recover Ground
An unexpectedly positive set of UK retail sales figures helped the Pound Sterling to US Dollar (GBP/USD) exchange rate return to an uptrend on Thursday morning.
As sales excluding auto fuel surged 3.8% on the year in June this suggests that consumers largely shrugged off Brexit-based anxiety at the end of the second quarter.
This naturally improved the appeal of Pound Sterling (GBP), even in the wake of the latest bout of market anxiety over the threat of the UK crashing out of the EU without a deal.
As forecasts had pointed towards a contraction in sales on the month investors took encouragement from a solid 1% monthly growth in spending.
While political worries remain this was not enough to prevent the GBP/USD exchange rate from rallying, recovering from its recent two-year low.
US Dollar (USD) Looks for Support on Manufacturing Index Rebound
Demand for the US Dollar (USD) could pick back up on Thursday afternoon if July’s Philadelphia Fed manufacturing index rebounds as forecast.
Investors expect to see the index strengthen from 0.3 to 5.0 on the month, signalling a greater level of resilience within the manufacturing sector.
As the risk of a further souring in US trade relations remains signs of a stronger manufacturing sector could encourage a greater degree of confidence in the economic outlook.
Evidence that the US economy regained some of its lost momentum at the start of the third quarter would offer the US Dollar a fresh boost against its rivals.
However, even a sharp increase here is unlikely to materially alter the odds of an imminent Federal Reserve interest rate cut.
If June’s leading index also shows an improvement on the month this could put further downside pressure on the GBP/USD exchange rate.
Narrowed Borrowing Deficit Forecast to Boost GBP Exchange Rates
With forecasts pointing towards a narrowing of the UK public sector net borrowing deficit in June the Pound could find another rallying point ahead of the weekend.
Signs that government borrowing eased at the end of the second quarter may improve confidence in the underlying health of the UK economy in the short term.
On the other hand, a widened deficit could see the Pound slump across the board once again.
Even so, politics looks set to remain the primary influence on GBP exchange rates in the near future as the Conservative leadership contest draws to a close.
As long as the risks of a no-deal Brexit remain heightened the mood towards Pound Sterling may sour further, leaving the GBP/USD exchange rate with the potential to fall to a fresh multi-year low.
Unless the successful leadership candidate rows back on previous hard-line comments on Brexit the Pound could remain on the back foot in the weeks ahead.