Upbeat UK inflation figures failed to keep the pound afloat on Wednesday. The pound US dollar exchange rate initially spiked higher to a peak of US$1.3023 before falling steadily lower across the session. The pound to US dollar exchange rate closed -0.6% lower amid Brexit concerns and following the Fed minutes.
GBP/USD has dropped through US$1.29, extending losses for a 4th straight session on Brexit fears, broad US dollar strength and as investors look ahead to UK retail sales data later today.
GBP/USD: Will UK Retail Sales Distract Pound Investors From Brexit?
After a solid run of UK data releases this week, attention will now turn to UK retail sales. Analysts are expecting retail sales to increase a solid 0.8% month on month in January, recovering from a -0.8% month on month decline in December.
Whether the data will be able to distract pound investors from Brexit developments remains to be seen. In the previous session, not even significantly stronger than forecast inflation data could prevent the pound from dropping on Brexit concerns.
Ambassadors of the European Union have been unable to agree on a common stance before Brexit negotiations begin next month. The inability of the group of 27 nations to formalise their position could delay the start of talks, increasing the chances of the UK leaving the EU on World Trade Organisation rules. This would be a significant step down from the current arrangement and has dragged on demand for the pound.
Dollar Gains As South Korean Covid-19 Cases Double
The dollar is on the front foot in early trading as flows into safe havens are on the increase on the back of anxities surrounding the coronavirus outbreak. The number of coronavirus cases in South Korea doubled and two people aboard the Diamond Princess have died. Whilst Beijing has injected liquidity into the financial system and cut household loan requirements, some market participants are seeing this as insufficient.
The minutes from the latest Federal Reserve monetary policy meeting had a muted reaction from the greenback. Fed officials were cautiously optimistic about their ability to keep rates where they are, despite new risks caused by the coronavirus outbreak. The Fed gave a fairly upbeat assessment of the US economy and expect consumer spending to remain on a firm footing. Given that there was little new information, the dollar barely reacted.
