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The pound slipped lower versus the US dollar before rebounding on Wednesday. The pond US dollar exchange rate dipped to a low of US$1.2822. The pair closed the session flat at US$1.2850. The pound is declining versus the dollar in early trade on Thursday.
The pound edged lower in the previous session following disappointing inflation data. Data released by the Office of National Statistics showed that consumer prices fell to the lowest level in almost three years. Inflation grew at just 1.5% in September, down from 1.7% the previous month. The drop in inflation will mean that households have more spending power heading towards Brexit. This is important given that the UK consumer has been supporting the UK economy as the manufacturing and construction sectors contract.
However, inflation moving away from the Bank of England’s 2% target means that the central bank will be more inclined to cut interest rates as its next move. The prospect of loser monetary policy pulled sterling lower.
Today pound investors will look towards the release of retail sales figures. Solid wage growth and falling inflation could support an increase in retail sales. Analysts are predicting that retail sales increased a steady 0.2% month on month in October. On an annual basis, retail sales are expected to have increased 3.4% year on year, up from 3% the previous month. Retail sales are considered to be a future indication of inflation. Strong retail sales could point to an uplift in inflation later down the road, which is pound positive.
Muted Dollar Reaction To Powell
The dollar shrugged off mixed US inflation figures in the previous session. The headline consumer price index unexpectedly ticked higher to 1.8% in October, up from 1.7%. However, core inflation, which cuts out more volatile items such as food and fuel unexpectedly declined to 2.3%, down from 2.4%. The mixed data had little effect on the dollar.
Dollar investors watched Fed Chair Jerome Powell’s testimony closely. Mr Powell told Congress that he saw little reason to lower interest rates in December, despite increasing pressure from Trump to loosens policy. The market showed little reaction to Powell’s testimony remarks which didn’t reveal anything the market didn’t already know.
The dollar is on the front foot today, supported by a risk off sentiment. US — China trades talks have hit another snag, this time over agriculture purchases. The escalating situation in Hong Kong is also hitting sentiment sending investors in search of the safe haven dollar.
| What do these figures mean? |
| When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written: 1 GBP = 1.28934 USD Here, £1 is equivalent to approximately $1.29. This specifically measures the pound’s worth against the dollar. If the US dollar amount increases in this pairing, it’s positive for the pound. Or, if you were looking at it the other way around: 1 USD = 0.77786 GBP In this example, $1 is equivalent to approximately £0.78. This measures the US dollar’s worth versus the British pound. If the sterling number gets larger, it’s good news for the dollar. |
