The brief dip in the USD on Wednesday was quickly reversed when the Philly Fed manufacturing index reported a scorching figure on Thursday, prompting the greenback to bounce back. This surge in the Philly Fed index marked its highest level since 2022, underscoring the robustness of the US economy and driving US two-year bond yields up to 5.00%, though they later retreated.
Following the Office for National Statistics' announcement this morning of stagnant UK retail sales in March 2024 (0% month-on-month), we witnessed a decline in GBP. However, losses were mitigated by a positive revision from 0% to 0.1% for February's figures. Expectations had been set for a robust growth of 0.3% month-on-month, and GBP/EUR exchange rate dipped from 1.1678 to 1.1668, reflecting market disappointment. Similarly, GBP/USD exchange rate fell from 1.2414 to 1.2405.
The ONS reported increases in sales for hardware stores, furniture shops, petrol stations, and clothing stores. However, these gains were counteracted by declines in food sales and department store activity. Retailers in department stores informed the ONS that high prices had adversely affected trading.
GBP appears poised to sustain its downward trajectory against both the EUR and USD, marking another week of losses against these currencies. These disappointing retail figures only contribute to the prevailing gloomy sentiment surrounding GBP.
Bank of England Governor Andrew Bailey's remarks midweek have notably contributed to the GBP's underperformance. Bailey's comments to fellow central bankers in Washington indicated that the latest inflation data didn't warrant concern. Markets interpreted this as a clear indication that he intends to advocate for an interest rate cut in June.
Should a rate cut indeed materialize in June, it would coincide with a similar move by the ECB, potentially stabilising the GBP/EUR exchange rate within its current 2024 range for the foreseeable future.
