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Shock Drop in UK Retail Sales Hits Pound to US Dollar Exchange Rate Outlook

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Pound to US Dollar Exchange Rate Unable to Sustain Recovery as BoE Rate Cut Bets Rise

After firming on hopes of a rebound in UK retail activity, the Pound Sterling to US Dollar (GBP/USD) exchange rate slipped back from its recovery attempts. It came in reaction to a surprisingly poor UK retail sales report.

Since opening this week at the level of 1.3065, GBP/USD spent over half of the week trending much lower, amid Bank of England (BoE) interest rate cut bets. GBP/USD touched on a January worst level of 1.2963 earlier in the week, before recovering.

Towards the end of the week, GBP/USD firmed higher and even touched on a weekly high of 1.3112 this morning. Today though GBP/USD has tumbled back towards the week’s opening levels again in reaction to the UK data.

Even though Bank of England (BoE) interest rate cut bets are rising though, the Pound to US Dollar exchange rate could avoid losses this week if this afternoon’s US production stats disappoint USD investors.

Pound (GBP) Exchange Rates Fail to Sustain Recovery as UK Retail Sales Disappoint

Markets had been hoping that Britain’s retail activity experienced a healthy rebound in December after a disappointing November. These hopes helped Sterling to recover from weekly lows in recent sessions.

The retail sales report ultimately fell well short of market expectations this morning however.

Sales were expected to have grown at around 0.5% month-on-month and 2.6% year-on-year, but the stats slumped to -0.6% and 0.9% respectively.

Another month of contracting retail sales concerned markets and left Bank of England (BoE) interest rate cut bets rising. According to Duncan Weldon from The Economist, a rate cut from the bank this month is becoming more plausible:

The Pound was unable to hold all of its recovery as a result, and is sliding today.

US Dollar (USD) Exchange Rate Appeal Limited despite Signs of Strength in US Data

The US Dollar (USD) was strong enough to regain some ground versus the Pound today. However, the currency’s outlook remains too mixed for it to push GBP/USD considerably lower for now.

US Dollar support has been bolstered by December’s US retail sales results, published yesterday. The yearly retail figure jumped to 5.8%, and export prices data was also a little better than expected.

However, the US Dollar has been unable to fully capitalise on these signs of strength in US data. Uncertainties over the future of US-China trade relations persist, and many US tariffs remain on China even after the ‘phase one’ trade deal was signed.

According to Greg Anderson, Global Head of Foreign Exchange Strategy at BMO Capital Markets, the better trade outlook for other nations as a result of the deal could also keep USD under pressure:

‘For the Dollar, it’s a mixed bag … it should mean higher US growth this year, but it also means higher foreign growth this year and less risks abroad, and that tends to pull capital out of the US and be Dollar negative,’

US Data and Central Bank Bets to Drive Pound to US Dollar (GBP/USD) Exchange Rate Outlook

The Pound to US Dollar (GBP/USD) exchange rate is currently on track to end the week relatively closely to where it started out. There is still potential for the pair to end lower or higher depending on upcoming notable US data.

US building stats, as well as manufacturing and industrial production data from December, will be published this afternoon.

If the US data beats expectations, hopes for the US economic outlook could improve and GBP/USD could be pushed lower again.

Weak US data may have the opposite effect though. It could help GBP/USD to sustain more of a recovery.

Pound investors are now more anxious that the BoE could cut UK interest rates as soon as the end of the month. As a result, investors will be highly anticipating next week’s key domestic ecostats including job figures on Monday and PMI projections on Friday.

Any surprising developments in Brexit or US-China trade news could also influence the Pound to US Dollar (GBP/USD) exchange rate outlook.