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Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast: US Federal Reserve National Activity Index Sinks to -0.5%

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The Pound sterling to US Dollar (GBP/USD) exchange rate continued to fall on Friday despite a tumble into negative territory for the Chicago Federal Reserve’s National Activity Index.

The figure fell from a positively revised 0.92 to -0.05% in December.

The Pound Sterling to US Dollar (GBP/USD) exchange rate recorded losses early in Friday’s session; however, gains may be on the cards after UK Retail Sales stats beat forecasts.

UK Retail Sales were predicted to decline in December on the year, and they did; just by less than expected. December’s ecostat was forecast to decline from 6.8% to 3.4%; however, the actual figure only softened to 4.2%.

Sales including autos fell from 6.4% to 4.3%.

The Pound recently dropped to a 13-month low after the Bank of England (BoE) released January’s meeting minutes. The minutes stated that all policymakers on the Monetary Policy Committee (MPC) voted in favour of keeping the benchmark interest rate at 0.50%.

In the past four meetings, two members of the MPC (Martin Weale and Ian McCafferty) have voted in favour of immediate rate hikes—a decision that was reversed in the latest meeting due to lower inflation.

Inflation has been sinking as a result of falling oil costs due to higher production causing a global glut. Lower inflation is one factor feeding into higher Retail Sales stats such as Friday’s figure.

However, Bank of England policymaker David Miles has suggested the UK is a long way off entering a ‘deflation trap’ like the Eurozone.

Miles stated: ‘Although actual inflation rate is now very low, and might temporarily dip down to zero and turn slightly negative, this is a long way from the sort of deflation trap that is really worrying.’

US Dollar Exchange Rate Falters on Initial Jobless Claims Increase

Meanwhile, the US Dollar exchange rate faltered slightly on Thursday with the release of Initial Jobless Claims figures, which showed a 307K increase in first time unemployment benefit applicants in the week ending January 17th. Economists had only forecast 300K.

The previous week also saw an increase and economists have suggested that the data was difficult to moderate on a seasonal basis. However, it appears as if maybe the previous week’s ‘noise’ wasn’t a one off.

Economist Daniel Silver stated: ‘It is unclear at this point whether or not this move up in the trend reflects issues seasonally adjusting the data around the holidays or if it represents a more meaningful deterioration in the labour market.’

Pound Sterling to US Dollar (GBP/USD) Exchange Rate Forecast

The Pound Sterling to US Dollar (GBP/USD) exchange rate could fluctuate on the release of several pieces of US data this afternoon. The Chicago Federal Reserve’s National Activity Index will be out, followed by Markit’s US Manufacturing Purchasing Managers Index.

In addition, US Existing Home Sales and Leading Indicators will be published.

The Pound Sterling to US Dollar (GBP/USD) exchange rate is trending in the region of 1.4981. The US Dollar to Pound Sterling (USD/GBP) exchange rate is trading around 0.6679.