The Pound Sterling to US Dollar (GBP/USD) exchange rate briefly dropped to its lowest level in 9-weeks on Tuesday after a report showed that UK food prices tumbled to a 5 ½ year low.
According to the British Retail Consortium food (BRC), prices in the UK have fallen sharply in recent months as the nation’s major food retailers continued with waging a war on prices.
As a result, the retail sector is likely to show signs of softening and Wednesday’s inflation data could come in below expectations.
Sales at stores opened for at least a year declined by as much as 3.5%.
The BRC also said that like for like retail sales dropped by 0.2%.
‘The retail sector is not looking quite as robust as it was earlier in the summer and as a consequence of that, that will keep sterling a little bit on the defensive. We’ve got markets increasingly focusing on that quarterly inflation report as well but I think there’s still a risk that Sterling has a little more downside to come in the shorter term,’ said Jeremy Stretch, head of foreign exchange at Canadian Imperial Bank.
The Pound was also under some pressure from increased market jitters over calls for an increased British role in the conflict in Iraq.
Royal Air Force Tornado jets have been authorised to provide surveillance and intelligence but calls are growing from members of the UK’s military and government for the UK to launch offensive action against the Islamic State.
“They have to look at what further action we could take by way of military assistance. Not talking about boots on the ground, there are other things we could do. One way or another, these maniacs, these medieval maniacs, in the so-called Islamic State, have got to be defeated,’ said former Labour Foreign Minister Jack Straw in a television interview.
Pound Sterling to US Dollar (GBP/USD) exchange rate forecast
Sterling is likely to experience further volatility on Wednesday as the eagerly awaited UK wage growth, unemployment and inflation data is due to be released.
Investors will looking closely at the wage data in particular as a continued weak showing will likely cause them to lower their bets for an interest rate hike before the end of the year.
A strong showing however and the Pound will make gains.
Soft UK Labour Data Sinks Sterling: GBP/USD Exchange Rate Weakened
The Pound Sterling to US Dollar exchange rate is currently trending around 1.6711.
Today has seen the Pound plummet against the majority of currencies. This is due to a less than desirable Average Weekly Earnings result which showed a dip from the forecast figure of -0.1% to -0.2%. This is a considerable declination from the previous figure of 0.4%.
Despite the ILO Unemployment Rate posting a result true to forecast, the lack of correlation between average earnings and unemployment has dominated any positive result.
Further issues for the Pound have arisen since the release of the Bank of England Inflation Report. The committee have decided to maintain their stance on monetary policy, and inflation rate remains at the low figure of 0.50%; a figure which has been unchanged since 2009.
The US Dollar’s standings will likely be altered later today with the release of their Advance Retail Sales data. At present the demand for the ‘Greenback’ (USD) has stayed steady in light of the ongoing geopolitical issues affecting the globe.
Pound (GBP) Exchange Rates
[table width=”100%” colwidth=”50|50|50|50|50″ colalign=”left|left|left|left|left”]
Currency, ,Currency,Rate ,
Pound Sterling,
,US Dollar,1.6781 ,
Pound Sterling,,Euro,1.2570 ,
Pound Sterling,,Australian Dollar,1.8105 ,
Pound Sterling,,New Zealand Dollar,1.9896 ,
US Dollar,,Pound Sterling,0.5959 ,
Euro,, Pound Sterling ,0.7955 ,
Australian Dollar,, Pound Sterling ,0.5523 ,
New Zealand Dollar,,Pound Sterling,0.5022 ,
[/table]
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