GBP USD rate tripped up by weak data

GBP USD Plummets to Lowest Level of 2021

After a brief blip on Thursday morning, the GBP USD rate managed to settle in the 1.38 range, having been propelled there by Bank of England (BoE) interest rate expectations – with the central bank expected to increase the cost of borrowing soon to curb inflation, possibly as early as next month.

Bets on a rate hike have continued to firm this week, despite softer-than-expected UK price data on Wednesday.

Investors are confident the BoE will raise interest rates in November, and perhaps again in December, to control inflation – which could spiral due to a severe labour shortage.

By this morning, however, the rate had slipped back into 1.37 territory amid waning consumer sentiment, a survey showed overnight.

Consumer sentiment dropped sharply in October against a backdrop of economic turmoil, including fuel shortages and rising prices: the GfK consumer confidence index fell to -17 in October, from -13 the previous month – the third month of decline.

Joe Staton, GfK’s client strategy director, said: “UK consumer confidence has taken a turn for the worse with all vital signs weakening. For two consecutive months, five sub-measures have decreased, and the headline score has dropped three months in a row. The sharpest concern is how consumers see the future economy.”

News of low consumer morale was compounded by disappointing data from the high street this morning: British retail sales fell 0.2% last month, official figures from the Office for National Statistics (ONS) showed on Friday, signalling weakness in the economic recovery from the pandemic.

The reading, which fell short of economists’ expectations for a monthly rise of 0.5%, showed that retail sales are still 4.2% higher than in February 2020 before Britain first went into lockdown, but are now 1.3% under the level posted a year earlier.

According to ONS statistician Darren Morgan: “Household goods were the main driver of this month’s decline with a fall of nearly 10%, while food sales ticked back up after falling last month,”

Jobless claims fall again

Investors in the dollar digested a mixed bag of data from the US economy on Thursday.

Weekly jobless claims fell to a fresh pandemic-era low last week as the termination of enhanced benefits forced fewer people to the unemployment line.

Worker filings for initial unemployment benefits decreased to 290,000 last week, down 6,000 from the previous period, the Labor Department said on Thursday – the second week in a row that claims were below 300,000.

Economists had forecast jobless claims to rise to 300,000 from 296,000 the previous week.

Continuing claims – which run a week behind the headline weekly total – also dropped to their lowest level since the Covid-crisis began, falling to 2.48 million, a decline of 122,000 from the previous week.

Meanwhile, weaker-than-expected manufacturing data weighed on the dollar: the Philadelphia Federal Reserve reported that its manufacturing survey fell to 23.8 in October, down from its September reading of 30.7 – missing the consensus of 25.

Looking ahead

The Markit manufacturing and Markit services purchasing managers’ indices from both the UK and the US hit the headlines today.

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