GBP USD Limps Away from March 2020 Low 

The pound rallied on Thursday evening, falling into the 1.17 range earlier in the day for the first time since March 2020. A spike in US inflation prompted markets to raise bets of a bumper 100 basis points Fed rate hike later this month, spooking investors. 

The UK currency tentatively pulled away from the two-year low as global market conditions eventually settled – but remained fragile. 

The pound’s gains were stifled by headwinds created by the protracted Conservative leadership race. Penny Mordaunt and Rishi Sunak emerged as the frontrunners as concerns lingered about a potential UK-EU trade war.  

This week ministers pushed ahead with a bill to override parts of Boris Johnson’s post-Brexit trading arrangements for Northern Ireland – a move none of the Conservative Party leadership candidates challenged. 

An EU representative said: “A new face always makes a difference. It provides an opportunity. One approach would be to broaden the discussion over Northern Ireland into a much wider-ranging attempt to reboot the relationship.” 

US retail sales exceed expectations 

The dollar remained on course to notch up a week of sharp gains against the pound amid haven buying and expectations of aggressive Fed policy tightening again this month to control runaway inflation – although interest rate rhetoric from Fed officials applied the brakes on Friday. 

Speaking at an event in Victor, Idaho, Federal Reserve Governor Christopher Waller said he would consider a 100 basis-point interest rate hike at the central bank’s July policy meeting, marking the most aggressive interest rate hike in decades. 

He said he supported another increase of 75 basis points, but his base case depended on incoming retail sales and housing data. If the data came in materially stronger than anticipated, it would make him lean towards a more considerable hike at this month’s meeting, indicating demand is not slowing down fast enough to decrease inflation. 

US retail sales exceeded expectations last month, demonstrating consumer resilience amid decades-high inflation and raising expectations of an even more significant Fed interest rate hike this month. 

On Friday, the Commerce Department reported that the value of overall retail purchases rose 1% after an upwardly revised 0.1% decline the previous month. Economists forecasted retail sales would increase by 0.8%. 

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