Pound To Dollar Exchange Rate Rebounds From 1-Month Lows (2024)

The Pound to Dollar (GBP/USD) exchange rate dipped to lows at 1.2670 on Tuesday, but held just above 1-month lows and recovered to 1.2720 after the US data.

The Pound to Euro (GBP/EUR) exchange rate retreated to around 1.1820 as the Euro recovered ground.

There was evidence of stabilisation in the French bond market which underpinned the Euro and increased scope for a Pound correction after strong gains last week.

Looking at French bonds, ING commented; “This adds to indications that the FX market's concerns about French politics may have reached a peak – at least for now.”

There was an element of position adjustment ahead of Wednesday’s UK inflation data and Thursday’s Bank of England policy decision.

The Pound drew an element of support from gains in equities during the day amid a tentative recovery in global risk appetite.

As far as data is concerned, headline US retail sales increased 0.1% for May after a 0.2% decline the previous month and below consensus forecasts of a 0.3% gain.

Underlying sales declined 0.1% for the second successive month while the control group recorded a 0.4% increase after a revised 0.5% decline for April.

The data maintained some reservations over the outlook for consumer spending within the economy.

According to Capital Economics chief North America economist Paul Ashworth; “The soft May retail sales data support our view that, after a disappointing first quarter, GDP growth remains a little lackluster in the second quarter too."

Michael Brown, analyst at Pepperstone considers that US exceptionalism is fading; “The May US retail sales report points to further signs of fatigue for the US consumer, with headline sales rising by a meagre 0.1% MoM, up from a downwardly revised 0.2% decline in the prior month.”

Danske also pointed to evidence of a weaker economy; “Current US data suggests that the first Fed cut is nearing. Although recent payrolls indicate a still robust labour market, the trend has generally been downward for economic activity and inflation.”

The bank expects a first rate cut in September and added; “This could be underappreciated in the markets, and if the next CPI and payroll reports disappoint, the likelihood of a July cut could increase.”

The bank expects a further cut in December and four cuts in 2025.

Markets will watch the latest UK inflation data closely for further evidence on whether the Bank of England can move closer to a rate cut.

According to Rabobank; “We remain of the view that both wage growth and services inflation do not align yet with a sustained return to 2% inflation. Despite this, we see the MPC adjusting its policy stance and forecast a first rate cut in August. However, if inflation figures for May and June again disappoint, we will reevaluate this.”

Investec economist Sandra Horsfield expects the BoE will want to avoid surprising markets.

She added; “Why rock the boat, when there is no need for haste and no opportunity to steady it?”

According to the latest data, company insolvencies fell 6% for May with a 21% annual decline.

Benjamin Wiles, managing director at Kroll, commented; “Compared to this time last year, we are seeing a pickup in business activity with key indicators showing improving consumer and business confidence. While I think it’s fair to say that we aren’t quite out of the woods, compared to twelve months ago when businesses were managing unpredictable cost inflation and energy bills, it does feel there’s now a lot more certainty for companies to plan.”

Assuming rates are held steady this week, the latest PMI business confidence data will be important both for confidence in the growth outlook and the BoE policy stance.