Pound Sterling US Dollar (GBP/USD) Exchange Rate Slides on Upbeat US Housing Data
UPDATE: Pound Sterling US Dollar (GBP/USD) exchange rate slumped by around -0.5% on Wednesday afternoon. This left the pairing trading at around $1.2522.
The US Dollar was able to extend its gains against the Pound this afternoon as risk appetite slumped further.
Added to this, data showed US homebuilding did not increase as much as expected in May.
However, there was a strong rebound in permits for future home construction which suggested the housing market was beginning to emerge from the coronavirus crisis in line with the broader economy.
According to Chris Rupkey, chief economist at MUFG in New York:
‘Housing is a leading economic indicator and it is pointing the way forward but there is a limit to growth when the economy has to drag along the millions and millions of unemployed workers displaced in this pandemic recession who won’t be seeing paychecks anytime soon.’
Pound Sterling US Dollar (GBP/USD) Exchange Rate Muted as UK Inflation Falls to 0.5%
The Pound Sterling US Dollar (GBP/USD) exchange rate was left largely flat on Wednesday. This left the pairing trading at around $1.2563.
Sterling remained under pressure today after British inflation slumped to the lowest level since June 2016 in May.
Consumer prices slowed from April’s 0.8% to 0.5% in May, which was largely in line with the average forecast.
The coronavirus pandemic battered the global economy, causing oil prices to plummet, sending inflation to a four year low. This has left the Bank of England (BoE) free to ramp up its stimulus programme once again.
Many economists predict the country’s central bank will announce an extra £100 billion of bond purchases during Thursday’s policy meeting.
According to Neil Birrell, chief investment officer at asset management firm Premier Miton:
‘Inflation is not something that is going to worry the Bank for some time. It will be more concerned about growth.’
US Dollar (USD) Holds Firm as Fed Warns of ‘Long Road’ to Recovery
The US Dollar held firm today against a basketful of its rivals after yesterday’s upbeat US retail sales data. Tuesday’s retail sales jumped by a better-than-expected 17.7% in May, recouping most of March and April’s falls.
Risk appetite also improved as concerns about the coronavirus pandemic and tensions in Asia increased.
The Dollar was left flat this morning after another cautious message from the US Federal Reserve’s Jerome Powell.
The Fed Chair warned of a ‘long road’ to recovery that will leave the world’s largest economy ‘well short of’ where it was in February for a long time.
Risk appetite suffered following Powell’s semi-annual testimony to the US Senate.
He also added that the Fed’s corporate bond buying programme that was unleashed this week would be tapered if the situation improves.
The bleak picture the Fed’s chair painted weighed on risk appetite, although it cemented hopes for continued policy support from the bank.
According to ING’s chief international economist, James Knightley:
‘Recent data flow has offered hope of a more vigorous economic rebound than we initially thought possible. The Fed remains wary though, with a renewed wave of infections arguing for caution. As such, Powell again emphasised policy will remain ultra-loose with the potential that they could have to do more to ensure the recovery continues.
‘He again tries to provide a reality check to the optimism in risk markets, such as equities, which are seemingly seeing only good things ahead. He warned of the risk of insolvencies, particularly in the small business sector and suggested that ‘until the public is confident that the disease is contained, a full recovery is unlikely’. Given a vaccine appears some way off and fears over a pick-up in Covid-19 cases in several states, he is clearly sitting on the more cautious side of the fence.’
Pound US Dollar Outlook: Fed and BoE in Focus This Week
Looking ahead, the US Dollar (USD) could edge higher against the Pound (GBP) as Federal Reserve Chair, Jerome Powell continues his testimony.
If the Fed’s head makes further cautious comments about the speed of recovery, it will weigh on risk appetite and support the ‘Greenback’.
Meanwhile, Sterling will remain under pressure ahead of Thursday’s Bank of England (BoE) monetary policy meeting.
If the BoE are overly cautious about the UK’s recovery from the coronavirus pandemic and highlight today’s dire inflation data, it will send the Pound US Dollar (GBP/USD) exchange rate lower.