Pound to US Dollar Exchange Rate Jumps on UK Data despite Fed Hawkishness
Despite signs that the Federal Reserve could hike US interest rates four times total in 2018, the Pound Sterling to US Dollar (GBP/USD) exchange rate climbed on Thursday, following the publication of a strong UK retail sales report.
While the UK retail sales results did not notably boost the Pound outlook, they left Sterling investors more hotly anticipating next week’s Bank of England (BoE) policy decision. GBP/USD could climb throughout the next week if the BoE is hawkish.
GBP/USD spent most of the week trending below the week’s opening level of 1.3397, even hitting a weekly low of 1.3318 on Wednesday. On Thursday though, the pair rebounded and trended near a weekly high of 1.3441 at the time of writing.
Sterling (GBP) demand improved following the publication of Britain’s latest retail sales results, while the US Dollar (USD) was sold from highs on profit taking following the Federal Reserve’s relatively hawkish meeting.
Pound (GBP) Exchange Rates Climb on Surprisingly Strong UK Retail Report
Market hopes that UK economic activity had rebounded following slow performance earlier in the year rose on Thursday, when Britain’s May retail sales results printed well above forecasts.
UK retail sales were forecast to have slowed from 1.6% to 0.5% month-on-month, but they instead only slipped from a revised 1.8% to 1.3%.
Meanwhile, the yearly figure was even more impressive and climbed from 1.4% to 3.9% rather than the forecast 2.4%.
According to the report, the jump in UK retail activity was due to better weather throughout Britain, as well as the Royal Wedding event.
The news bolstered Pound demand and raised hopes that stronger consumer activity would boost price pressures and make the Bank of England (BoE) more likely to hike UK interest rates at some point this year.
However, some analysts doubted that this would be the start of a stronger trend in household activity. This limited Sterling’s climb. According to Ranko Berich from Monex:
‘Today’s figures… may spark hopes of UK households… once again riding to the rescue of the economy. But seasonal effects, and the lacklustre growth in retail sales over the last six months in general, mean that this is unlikely to be the case and May’s report will probably end up looking like a false dawn in a month or two. ‘
US Dollar (USD) Sold from Highs Despite Hawkish Signals from Federal Reserve
The Federal Reserve announced its second 2018 interest rate hike during its June policy decision on Wednesday evening, and it seems like there may be two more rate hikes on the way before the year is out.
However, as investors have become increasingly bullish about Federal Reserve interest rate hike bets in recent months and have continued to price it into the US Dollar, the tone ultimately had little effect on US Dollar trade.
In fact, following the rate hike many investors opted to sell the US Dollar from its highs in profit taking, amid little fresh reason for markets to keep driving the currency higher.
Investors also remain anxious about US trade protectionism, as Fed Chairman Jerome Powell noted that uncertainties remained about the nation’s trade relations across the globe.
As a result, the US Dollar was pressured and unless trade jitters fade investors may not have much reason to buy the currency again.
Pound to US Dollar (GBP/USD) Forecast: US Confidence and Bank of England (BoE) Speculation
Britain’s economic calendar will quieten down a little for the next week, but there may still be plenty of news that could drive shifts in the Pound to US Dollar (GBP/USD) exchange rate outlook.
US Dollar trade is unlikely to strengthen considerably in the coming sessions unless there is a boost in demand for safe haven currencies or news indicating US trade relations are improving.
However, if upcoming US ecostats impress investors it could still help the US Dollar to avoid further losses against Sterling, especially with the Pound’s strength still limited by Bank of England (BoE) and Brexit uncertainties.
Friday will see the publication of the latest US consumer confidence data from Michigan University, and next week the US Dollar may be driven by home sales stats and Markit’s US PMI projections for June.
Sterling investors are now highly anticipating next Thursday’s Bank of England (BoE) monetary policy decision.
The bank is not expected to announce any changes to UK monetary policy, but if officials maintain an optimistic tone despite signs of subdued UK price pressures the Pound to US Dollar (GBP/USD) exchange rate could advance.