The Pound to US Dollar (GBP/USD) exchange rate slipped on Tuesday after a negative risk tone pulled the Sterling lower alongside a slowdown in the UK retail and housing sectors.
On the other hand, more drastic losses were limited as USD was weighed by market bets on a pause in policy tightening from the Federal Reserve. Signs of waning confidence in the US economy also prevented a deeper downturn in the exchange rate.
At time of writing the GBP/USD exchange rate was at around $1.2410, which was down roughly 0.2% from that morning’s opening figures.
Pound (GBP) Exchange Rates Drift Lower amid Signs of Retail and Housing Slowdown
The Pound (GBP) edged lower on Tuesday. Signs of a slowdown in the UK’s retail and housing sectors weighed on Sterling.
Data collected by the British Retail Consortium (BRC) outlined a greater-than-forecast drop in retail sales growth in May. The BRC’s retail sales monitor fell to 3.7% which was its lowest reading since October 2022.
Speaking on the reasons behind the figures, KPMG’s UK head of retail Paul Martin said:
‘The wild card for the retail sector remains uncontrollable food inflation, which shows little sign of coming down in the near future, and this is having a significant knock-on effect on non-essential spending.’
Evidence of a drop in UK house building also dented confidence in the Pound on Tuesday. Whilst May’s construction PMI printed in positive territory of 51.6, the survey showed that house building fell at its fastest pace since May 2020.
Tim Moore, economics director at survey company S&P Global, said:
‘Cutbacks to new residential building projects in response to rising interest rates and subdued housing market conditions resulted in the sharpest drop in housing activity for three years.’
US Dollar (USD) Exchange Rates Lifted by Retreat in Risk Appetite
The US Dollar (USD) regained lost ground on Tuesday. The safe-haven ‘Greenback’ benefitted from a pullback in global risk appetite, although these gains were curbed by a risk-on impulse later in the day.
Expectations of a pause in policy tightening from the Fed also undermined the US Dollar on Tuesday. Softer data for the US services sector on Monday added to speculation that the US central bank could keep rates unchanged.
Speaking on the Fed’s likely forward path, ING’s Chief International Economist James Knightley said:
‘Companies are reporting a jobs surge in May, yet households are telling us employment plunged. Who to believe? Well, with wage growth continuing to soften and hours worked edging lower the market is thinking the June FOMC meeting "skip" narrative still holds. We agree but are nervous that a hot core CPI print on 13 June could yet tip the balance.’
Finally, a poor reading of the US economic optimism index hobbled the US Dollar’s gains. The index edged slightly higher to 41.7 in June which was still well below the benchmark reading of 50. The index outlined falling support for US economic policies following the US debt ceiling deal.
GBP/USD Exchange Rate Forecast: Will Signs of Tight US Labour Market Bolster USD?
Looking to the rest of the week for the US Dollar, April’s trade data could see the currency fall on Wednesday if the data prints as expected. The US’ trade deficit is set to widen to $-75.2bn. The figures could add to fears of a hard landing for the US economy in the coming months.
On Thursday, the latest jobless claims could help to restore some confidence in USD if they print as forecast. Jobless claims for the week ending 03 June are set to remain close to previous highs. The indication of persistent tightness in the US labour market could also inspire fresh Fed rate hike bets.
The safe-haven ‘Greenback’ may find additional support if market mood remains cautious over the coming week.
The Pound will see no additional data releases this week. Movement in Sterling may be driven by any shifts in Bank of England rate hike bets.