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Will GBP/USD Falter as UK Retail and Private Sector Struggles?

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Pound US Dollar (GBP/USD) Exchange Rate Slides as Fed Turns Hawkish

The Pound US Dollar (GBP/USD) is enduring negative trade so far, as investors pore over last night’s Federal Reserve statements.

At the time of writing, GBP/USD is trading at around US$1.2337, a drop of roughly 0.7% from the morning’s opening rates.

Pound (GBP) to Weaken amid Dovish BoE?

The Pound (GBP) may weaken throughout this afternoon and tomorrow, with investors anticipating the next interest rate decision from the Bank of England (BoE).

The BoE is expected to announce a 50bps interest rate hike, which markets have largely priced in with little surprise anticipated.

Furthermore, reports are stating that the BoE appears to be split on the direction of future rate hikes. Due to the continuing weakness in the UK economy, some policymakers could have argued for a 25bps rate hike, and some taking a hawkish stance by arguing for 75bps.

Because of this lack of clarity over the future of the BoE’s tightening policy, investors may withdraw support from Sterling.

Furthermore, the latest private sector indexes are due to print on Friday. Contractions are expected in both services and manufacturing, which may stoke fears of a deeper recession and push the pound lower.

Elsewhere, a continuing risk-off mood could weigh on the increasingly risk-sensitive Pound and cause it to weaken further.

US Dollar (USD) to Fluctuate with the Release of Private Sector PMIs?

The US Dollar is likely to fluctuate through today and tomorrow, as investors anticipate this afternoon’s retail sales figures and Friday’s private sector PMIs.

With the US economy largely focused on consumption, the forecast of a fall in retail sales from 1.3% to -0.1% could lead to a weakening US Dollar.

Similarly, the latest manufacturing index is predicted to remain in contraction territory, staying at 47.7. As such, this could impact the ‘Greenback’ by pointing to a slow US economy, but this may be countered by an uptick in the services index.

While the services PMI is forecast to show the sector remaining in contraction, the index is expected to print at 46.8 from 46.2. This could serve to balance the lack of movement in the construction index, and lead to a muted US Dollar.

Furthermore, a risk-off market mood could continue through to the end of the week, which may bring support to the safe-haven currency.

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