ExchangeRates.org.uk - The Pound to Dollar (GBP/USD) exchange rate hit 7-month lows at 1.2475 before creeping back above 1.2500.The Pound to Euro (GBP/EUR) exchange rate also retreated to 1.2040.
"GBPUSD has sold off c.150 pips since the BoE meeting and is now trading around the 1.25 level, extending its losses following the hawkish FOMC meeting on Wednesday, while EURGBP rallied c.
80 pips to trade around 0.83 - Bloomberg
Position adjustment and declining liquidity will increase the threat of choppy trading.
UK data releases have not offered significant support with growing reservations surrounding growth trends.
Equities have retreated further which has sapped Pound support while the dollar has also held firm.
According to MUFG; “We expect GBP/USD to decline further over the coming months although from a trade tariff perspective the US trade surplus with the UK could help shelter the UK to a degree.”
UK retail sales volumes increased 0.2% for November after a 0.7% decline the previous month and compared with consensus forecasts of a 0.5% increase.
Sales increased 0.5% over the year after 2.0% previously while overall volumes were still 1.6% below pre-covid levels
Neil Birrell, chief investment officer at Premier Miton Investors, notes that the economy is struggling; “With the Bank of England keeping interest rates on hold yesterday and inflation in the system, there are concerns around growth prospects as we go into the new year.
He added; “Christmas is a key period for retail sales and will give a further clue on short term outlook and may influence the BoE at its next meeting.”
The UK government borrowing requirement provided some relief with a decline to £11.2 billion for November 2024 from £14.6bn the previous year and the lowest November deficit for three years.
According to ONS deputy director for Public Sector Finances Jessica Barnaby; “Central government tax receipts grew compared with last year, while increased spending on public services and on benefits were offset by lower debt interest payable.”
Over the first 8 months of 2024/25, the deficit declined slightly to £113.2bn from 113.6bn the previous year, but was the third-highest deficit on record.
Globally, a key short-term talking point will be the threat of a US government shutdown which is liable to inject additional volatility.
On Thursday, after pressure from President-elect Trump, the original House of Representatives spending Bill was withdrawn.
A new, smaller bill which including removing the debt limit was rejected and the government will shutdown from Saturday if no deal is reached.
Short-term US rates fell slightly, but longer-term rates moved higher amid concerns over tax cuts and a potential removal of the debt ceiling.
MUFG commented; “The concerns of bond investors remain and President-elect Trump’s surprise demand for the spending deal to be renegotiated so that the debt limit issue is included could result in the complete elimination of the debt limit that would free up Trump to move forward without risk of complication with his tax cut, deficit expansion plans.”
This content was originally published on ExchangeRates.org.uk