Following the U.S. presidential election win by Donald Trump, the U.S. dollar (USD) has demonstrated notable strength against the British pound (GBP), the euro (EUR), and other major currencies. The GBP alone has declined by over 3% against the USD, underscoring the latter’s dominance. This trend appears poised to continue, as indicated by recent movements following the release of UK retail sales figures and escalating tensions in the Ukraine-Russia war.
Up until this morning, currency rates remained relatively stable, largely due to the absence of significant economic data releases. However, the release of the UK Consumer Price Index (CPI) provided an exception. The CPI was forecast to rise from 1.7% to 2.2%, with the actual figure surpassing expectations at 2.3%. While this offered a brief reprieve for the GBP, helping it recover some losses against the USD, the rally was short-lived.
The USD quickly regained its footing, bolstered by geopolitical developments. News that U.S. President Joe Biden approved the use of American-made long-range missiles by Ukraine against Russia heightened market concerns, causing further escalation in the Ukraine-Russia conflict. Investors responded by flocking to the USD, traditionally seen as a safe-haven currency during global uncertainty.
Early this morning, the UK released its latest retail sales figures, an event closely watched by analysts given the earlier CPI results. Forecasts anticipated a modest decline, with an expected result of -0.3%, down from the previous reading of 0.1%. However, the actual figure of -0.7% was significantly worse than expected, resulting in the GBP hitting fresh lows against the USD. Conversely, disappointing Purchasing Managers’ Index (PMI) data from the Eurozone provided a boost for the GBP against the EUR, pushing the pound to fresh highs. The morning’s events highlighted heightened market volatility, driven by a mix of economic data and geopolitical uncertainties.
Looking ahead, the coming week appears to favour continued USD strength. The Eurozone and the UK are expected to see minimal impactful data releases, while the U.S. is set to release several key indicators, including Consumer Confidence and GDP figures. Additionally, a hawkish tone is anticipated from the Federal Open Market Committee (FOMC) minutes. These factors are likely to further bolster the USD, putting additional pressure on the GBP and potentially leading to significant losses for the pound against the greenback.
