The US Dollar wasn’t quite as appealing on Thursday as market jitters revolving around Turkey and the Turkish Lira (TRY) lightened. However, the US Dollar to British Pound (USD/GBP) exchange rate remained resilient despite this week’s UK data generally coming in solidly, as ‘no deal’ Brexit fears persist.
USD/GBP may be in for yet another week of gains, as the pair opened at the level of 0.7831 on Monday and trended near the level of 0.7870 at the time of writing. USD/GBP has slipped slightly from Wednesday’s best levels of 0.7892, but analysts noted that the Pound has now seen its longest losing streak against the US Dollar since 2008.
USD Finds Support in Strong US Retail Sales and Solid US Economic Expectations
Demand for the US Dollar has remained persistently strong thanks to market expectations that the US economy will continue to improve, and the Federal Reserve will continue to hike US interest rates over the coming year.
The US Dollar saw further domestic support since Wednesday, as the latest US retail sales results came in even stronger than expected too.
July’s monthly US retail sales rate was forecast to come in at 0.1%, but jumped to 0.5%. The yearly print improved from 6.1% to 6.4%.
Generally, analysts believe the US Dollar’s continued appeal in markets is due to the strong US economic outlook. According to Oliver Pursche, Chief Market Strategist at Bruderman Brothers:
‘I think the Dollar is strengthening as a result of diverging monetary policies,
It’s fairly clear that the Fed is almost certain to hike in September and very likely to hike in December again, whereas other central banks are maintaining a status quo.’
However, the US Dollar is also benefitting from market demand for ‘safe haven’ currencies.
The strong US economic outlook has also meant the US Dollar is being viewed as the safest of the traditional ‘safe havens’, amid geopolitical tensions between the US and rival nations.
US President Donald Trump has recently ramped up trade tensions between the US and Turkey. This, as well as the recent issues with the Turkish Lira (TRY), have only bolstered the US Dollar’s ‘safe haven’ appeal according to Charles Tomes from Manulife Asset Management:
‘In a lot of ways some of his actions have amplified this risk-off type of environment, which has ultimately helped the US Dollar strengthen in the near-term,’
GBP Fails to Recover despite Surprisingly Strong UK Retail Sales Results
Thursday saw the publication of Britain’s July retail sales results, which rounded off a week of better than expected data for the UK.
The retail sales results were particularly impressive, with the month-on-month figure jumping from -0.5% to 0.7% rather than the forecast 0.2%. Similarly, the yearly figure climbed from 2.9% to 3.5% rather than the predicted 3.0%.
The Office for National Statistics (ONS), which compiles the report, noted that thanks to the hot weather and the World Cup, retailers were a lot more resilient than expected.
In particular, strong activity at online retailers helped to offset weakness in high street retail activity.
According to David Cheetham, Chief Market Analyst at XTB Ltd.:
‘Looking at the bigger picture a year-on-year increase of 3.5% compared to 2.9% forecast is no doubt pleasing and while there may have been some one-off factors which contributed to the improvement it is a solid data point nonetheless.’
Despite all this though, the Pound was unable to strengthen versus the US Dollar. This was due to the US Dollar’s broad strength, as well as underlying fears about how a ‘no deal’ Brexit could impact Britain’s economy.
USD/GBP Forecast: US Michigan Consumer Confidence Data Ahead
So long as US data remains solid for the remainder of the week, investors may not have much reason to sell the US Dollar and the US Dollar to Pound exchange rate could end yet another week higher.
However, if US data is highly disappointing this could dampen US Dollar demand, especially if it indicates that the US economic outlook isn’t quite as strong as expected.
Friday will see the publication of Michigan University’s August consumer sentiment projections, which could influence the US Dollar slightly if they surprise investors.
Ultimately though, as ‘no deal’ Brexit fears persist and the US Dollar continues to find strength in ‘safe haven’ demand and the strong US outlook, the US Dollar to Pound exchange rate is forecast to hold its ground.
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TAGS: Dollar Pound Forecasts