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Tue 27 Oct 2020 18:36GMT

British Pound Rebounds from Lows as UK Retail Impresses While Fed Dovishness Weighs on US Dollar

Published: 24 May at 4 PM Tags: Euro, Dollar, Pound Sterling, America, UK, Eurozone, Australian Dollar, New Zealand Dollar, Canadian Dollar, Australia, New Zealand, USA, Canada, Germany, Italy,

Pound Sterling (GBP)
Following another disappointing UK inflation report earlier in the week, Bank of England (BoE) interest rate hike bets tumbled and so did the Pound. With Britain’s economic outlook increasingly gloomy and Brexit uncertainties persisting, investors have had little reason to buy the British currency.

Demand for the Pound improved a little towards the end of the week though, as Britain’s April retail sales results surprised by coming in well above expectations in all major prints. The monthly figure surged from -1.1% to 1.6% and the yearly figure from 1.3% to 1.4%.

Despite this though, Sterling’s strength was limited. Analysts perceived the UK retail sector as having seen too much weakness in the long-term for this report to really improve the outlook. Still, Sterling may have another chance at recovery on Friday if Britain’s latest Q1 growth projections are revised higher.

Euro (EUR)
Italian political jitters have taken focus for Euro investors over the last couple weeks, as populist parties the 5-Star Movement and the League party seem to have all but secured a coalition to become Italy’s next government.

The parties’ pick for Prime Minister, Giuseppe Conte was accepted by Italy’s President on Wednesday evening and will likely begin to put together a government cabinet in the coming days. Concerns that a populist government will lead to increased Euroscepticism in Italy have made the Euro less appealing.

Demand for the Euro is unlikely to strengthen notably over the coming week as political uncertainties remain a concern and Eurozone data has continued to indicate that the bloc’s economic growth is slowing. Still, Friday’s German business confidence figures may cause some late-week Euro movement.

US Dollar (USD)
Following weeks of rallies for the US Dollar, markets took a breather this week – one which could last. The US Dollar was sold from its best levels as investors took profit, but the Federal Reserve’s latest meeting minutes showed a surprisingly cautious tone.

The bank expressed concerns about how the US government’s protectionism on trade could have a negative effect on US businesses. Fed officials also signalled that the bank would temporarily tolerate US inflation rising over its 2% targets. The minutes overall hinted that the bank was in no rush to signal a faster pace of US interest rate hikes, limiting US Dollar demand.

Friday’s US durable goods orders report from April could influence some late-week movement in the US Dollar, but investors are more likely to await next week’s US growth projections and Non-Farm Payroll results.

Australian Dollar (AUD)
Despite a lack of supportive Australian ecostats in recent sessions, the Pound to Australian Dollar exchange rate has been trending near its worst levels in over two months this week.

The Australian Dollar benefitted earlier in the week from strong prices of commodities like iron ore. Iron ore is Australia’s most lucrative commodity. On top of this, the US Dollar’s (USD) rebound from its highs has left risky currencies like the Australian Dollar more appealing.

More influential Australian data will be published next week which could influence Australian Dollar movement. Private sector credit, Australian manufacturing PMI data and April retail sales will be published towards the end of the week. USD strength and trade news could influence AUD too.

New Zealand Dollar (NZD)
While not as strong as the Australian Dollar, the New Zealand Dollar has also been benefitting from US Dollar weakness and as a result the Pound to New Zealand Dollar exchange rate has been trending lower for most of the week.

Thursday saw the publication of New Zealand’s April trade balance results, which indicated that New Zealand trade had been stronger than expected last month. This helped NZD to hold most of its recent gains against Sterling.

Next week’s New Zealand economic calendar will be a little busier, with the Reserve Bank of New Zealand’s (RBNZ) financial stability report due on Wednesday, followed by business confidence on Thursday and consumer confidence on Friday.

Canadian Dollar (CAD)
After hitting its worst levels since January earlier in the week, the Pound to Canadian Dollar exchange rate saw a more solid recovery on Thursday. It was partially thanks to UK retail sales results, but also trade uncertainties weighing on the Canadian Dollar.

The risky, trade-correlated Canadian Dollar became less appealing towards the end of the week as US President Donald Trump appeared unsatisfied with progress in NAFTA renegotiations. On top of this, prices of oil, Canada’s most lucrative commodity, have fallen from recent highs.

Next week’s Canadian economic calendar will be a very busy one. The Bank of Canada (BoC) will be holding its May policy decision on Wednesday, followed by Canada’s Q1 growth results on Thursday and manufacturing PMI on Friday.
As of Thursday, 24th May 2018, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.1419, GBP USD exchange rate was 1.3386, GBP AUD exchange rate was 1.7658, GBP NZD exchange rate was 1.9301, and GBP CAD exchange rate was 1.7241.
Dominic Lee About Author: (438 Posts)With over ten years experience as an economist – including four years spent as a chief economist with a major currency broker – Dominic has acquired a wealth of knowledge which he uses to forecast market movements. Dominic now works as an independent business advisor and writes for several financial publications.

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