GBP USD Stimulated by UK Retail Sales Rise

GBP USD Exchange Rate Rebounds Above 1.31

The pound clung onto its gains from the previous day on Thursday, hitting a fresh one-week high against the dollar. A dry UK economic calendar meant the UK currency remained propped up by data sets released earlier in the week.

The GBP USD rate briefly touched 1.35 as investor expectations grow that the Bank of England (BoE) will act swiftly to combat inflation by hiking interest rates, which would in turn support the pound.

The UK currency has been bolstered this week amid soaring inflation and encouraging economic data, creating a swell of speculation the BoE will be the first major central bank to raise rates since the Covid-19 pandemic hit.

Data on Tuesday showing Britain’s job market rode out the end of the government’s job-protection furlough scheme eased concerns about the risks of tightening monetary policy – and boosted interest rate expectations.

Figures released overnight showed consumer confidence in the UK improved in November as the Christmas shopping season gets in full swing.

GfK’s consumer-confidence barometer increased to minus-14 this month from minus-17 in October, following three straight months of declines.

GfK’s client strategy director Joe Staton said: “Headline consumer sentiment has ticked upward this month despite decade-high inflation, fears of higher prices and worries over rising interest rates, and as the deepening cost-of-living squeeze leaves UK household finances worse off this winter,”

More upbeat figures from the UK economy hit the headlines this morning, propelling GBP USD back above the 1.35 benchmark.

Retail sales have risen in Britain for the first time in six months, boosted by an early Christmas spending boost on toys and clothes, official data published by the Office for National Statistics showed

British retail sales increased by 0.8% in October, exceeding economists forecast who had indicated a 0.5% month-on-month increase in sales volumes.

Dollar is robust as inflation heats up

It was a similar story in the US, where surging inflation and expectations of potential monetary policy tightening by the Federal Reserve caused the dollar to rally.

Investors are placing bets on the Fed to speed up the taper of its bond-buying programme and raise rates more aggressively than expected amid rising inflation.

Looking ahead

The week winds down with speeches from two Fed officials: Christopher J. Waller and Richard H. Clarida. Investors will be listening out for updates around the timing of the US central bank’s monetary policy moves.

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