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Pound US Dollar Exchange Rate to Weaken on Expected Fed Pause?

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GBP/USD Exchange Rate Weakens amid Slowing UK Retail Sales Growth

The Pound US Dollar (GBP/USD) exchange rate is softening after UK retail sales slowed, missing expectations as soaring food prices weighed on consumer spending.

At time of writing the GBP/USD exchange rate is around $1.2404, a 0.24% fall from this morning.

Pound (GBP) Undermined by Retail Slump

The Pound (GBP) came under moderate selling pressure this morning as the latest retail sales monitor revealed slower-than-expected growth in the retail sector.

Against predictions of an unchanged 5.2% growth from the year leading up to April, retail sales still expanded, but at a much slower pace. Sales rose by 3.7% on a yearly basis, falling to a seven-month low. Helen Dickinson, Chief Executive of the British Retail Consortium (BRC) commented on the latest data:

‘With consumer confidence still recovering from record depths, and continued tightening of household incomes, we are unlikely to see substantial sales growth in the coming months. But, with signs that inflation has possibly peaked, retailers are hopeful that confidence will continue to improve.’

Looking ahead, with a thin trading calendar, the Pound could remain under pressure amid a wavering market mood. The previous gains from elevated interest rate hikes from the Bank of England (BoE) appear to being repriced, but prospects of prolonged tightening could buoy Sterling.

US Dollar (USD) Undermined by Expectations of a Rate Pause

The US Dollar (USD) opened the day on the back foot in the wake of downbeat ISM services PMI. A loss of momentum in the sector’s growth saw a pullback in demand for the ‘Greenback’.

Against expectations of an improvement to 52.2, the service sector’s growth softened to 50.3, close to the stagnation line of 50. Additionally, a contraction in employment in the service sector was compounded by easing input inflation. Both showed signs of a stuttering economy, alongside a flagging manufacturing sector.

With troubling economic data, the case for a pause from the Federal Reserve grows every passing day, weighing on the US Dollar. Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE at ING, said of the situation:

‘However, the US data calendar is now pretty quiet for the rest of this week and the market may well hold positions into next week’s May CPI data and the June 14th FOMC meeting.’

Looking ahead, a relatively thin trading calendar for the USD could also see the ‘Greenback’ trade on market sentiment. However, with growing expectations of a pause at the next Fed policy meeting, the US Dollar could lose demand.

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