UK Retail Sales Smash Expectations – Pound US Dollar (GBP/USD) Exchange Rate Rallies
The outlook for the Pound US Dollar (GBP/USD) exchange rate grew brighter on Thursday morning as investors reacted to a surprising recovery in UK retail sales over the April period.
According to the Office for National Statistics (ONS), retail sales in the UK climbed by 1.5% year-on-year, crushing the forecast of 0.1% and the previous period’s upwardly revised 1.3%.
On a monthly basis, retail sales increased by 1.3%, beating the previous -0.5% decline and the forecast of a 0.4% rise.
These upbeat results came on the back of a broad-based recovery, though a post-storm petrol comeback proved the predominant driver.
They also bode well for the state of the UK economy in Q2, though whether it will be enough for the Bank of England (BoE) to move hawkishly at the next rate meeting remains to be seen.
Peter Dixon, Economist with Commerzbank shared his thoughts on the results:
‘These figures show the consumer is not dead and they keep the Bank of England on its toes. This is grist for the mill for those that think a rate rise is justified sooner, rather than later’.
US Dollar (USD) Exchange Rates Stumble on Mixed-Message Fed Minutes
The US Dollar (USD) encountered pressure this morning as investors responded to the release of the Federal Open Market Committee (FOMC) meeting minutes, which called for a ‘continuation of the gradual approach’ in regards to rate rises.
Greg McKenna, Chief Market Strategist at AxiTrader said:
‘The Fed’s tolerance for inflation above 2% as “helpful in anchoring longer run inflation” is a clear sign that even through pressures are rising, the Fed won’t be too aggressive on any uptick’.
The minutes did, however, remain very upbeat about the state of the US economy, whilst also signalling that another rate rise would ‘likely soon be appropriate’.
Beyond this, investors were disappointed to hear that the US-China trade negotiations are encountering some turbulence, with the US President now calling for a new ‘structure’ in order to reach agreement.
Any sign that these nations will remain at loggerheads is liable to drive demand away from the ‘Buck’, with traders anxious that retaliatory tariff measures will harm the US economy.
UK GDP Results on the Horizon – What can we Expect for the Pound US Dollar (GBP/USD) Exchange Rate?
Tomorrow will feature the UK’s second Q1 GDP estimate, with investors expecting it to fall from the previous score of 1.4% to 1.2% (year-on-year).
If this occurs then we could see GBP/USD reverse some of today’s gains, though tomorrow’s US durable goods orders and a potentially significant speech from US Fed President Jerome Powell could also provoke volatility.
Tomorrow will also feature the University of Michigan survey results, with their inflation expectations liable to knock the ‘Buck’ up or down depending on how optimistic their price forecasts are.