Sterling exchange rates strengthen following positive retail sales. Will it last?

Pound exchange rates have received a welcome boost this morning with strong retail sales figures, as predicted by my colleague Alastair yesterday.

The week started poorly with weaker than forecast manufacturing data on Monday along with concerns surrounding Brexit pushing the pound close to 1.13 against the Euro and 1.33 against the US dollar. This mornings data has put an end to a recent run of poor data. Will it last?

Overnight the Federal Reserve released its latest interest rate decision and as expected they raised the US base rate to 2%, something that was heavily priced into the market and therefore caused very little market reaction.

Is this the end of the run for the dollar against the pound?

As mentioned this move from the Fed was widely expected and has caused very little market reaction. In fact the dollar has weakened following the post rate press conference for Fed Chair Jerome Powell. Previously the market had been pricing in up to three further rate hikes from the Fed for the rest of the year, however his conference was less hawkish regarding interest rates with the market now forecasting two further hikes. Jerome Powell was bullish with regards to the prospects for the US economy but his relatively dovish tone has caused a slight sell off for the dollar.

For me as the market has priced in another 3 hikes, we could see a slight correction for the dollar and I would not be surprised to see levels back towards 1.35. It will also be worth seeing what comes from today’s European Central Bank (ECB) decision for any impact on EUR/USD. As with GBP/USD the dollar has weakened against the Euro to push back through 1.18.

We are not expecting anything from the ECB in terms of interest rates however we could see clues from ECB President Mario Draghi with regards to the end of the central banks Quantitative Easing (QE) programme. The majority of economists expect the purchases to end by the end of the year and if his press conference suggest this, then we could see some Euro strength this afternoon.

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