Pound US Dollar (GBP/USD) Exchange Rate Rallies as UK Retail Sales Hit 18-Month High

Unexpectedly Improved Retail Sales Growth Lifts Pound US Dollar (GBP/USD) Exchange Rate

An unexpectedly positive showing from the CBI distributive trades index helped to lift the Pound Sterling to US Dollar (GBP/USD) exchange rate this morning.

While forecasts had pointed towards sales volumes falling once again in September the index instead showed a positive balance of 11%.

This drove the index to an eighteen-month high, with grocers largely accounting for this solid growth in sales volumes.

Pound Sterling (GBP) pushed higher against its rivals in the wake of the report, even though other areas of the retail industry saw a much poorer performance at the end of the third quarter.

However, as the data was largely collected before fears of a second wave of Covid-19 infections gripped the country the retail sector could struggle to maintain this positive momentum in the months ahead.

Pound Looks for Support on Chancellor’s ‘Winter Economy Plan’

The mood towards the Pound could sour this afternoon, though, if Chancellor Rishi Sunak fails to impress markets with his so-called ‘winter economy plan’.

With the government furlough scheme ending imminently investors are nervous to see what other measures the Chancellor might offer to shore up businesses.

As the Office for National Statistics reported that more than 10% of the UK workforce are still currently on partial or full furlough leave the prospect of a significant wave of job losses remains.

Unless the government offers a fresh wage support programme to replace the current scheme a sense of anxiety over the labour market looks set to drag on GBP exchange rates.

If Sunak announces sufficient economic support in his speech to the House of Commons, however, this may encourage the Pound to make further gains against its rivals.

Falling US Jobless Claims Figures Set to Shore up US Dollar

While a sense of safe-haven demand has helped to shore up the US Dollar (USD) over the course of the last week it failed to hold onto its bullish trend.

USD exchange rates could return to a stronger footing this afternoon, though, if the latest US initial and continuing jobless claims figures improve as forecast.

Evidence that the US labour market continued to claw back some of its losses in recent weeks would offer fresh cause for confidence in the wider economic outlook.

Even though unemployment remains high by historic standards evidence that the trend is moving in the right direction would offer the US Dollar a boost.

On the other hand, if either initial or continuing claims fail to show an improvement this could give the GBP/USD exchange rate another leg up.

With political tensions rising ahead of the presidential election the diminishing possibility of fiscal stimulus also looks set to limit the potential for US Dollar gains.