Despite rising Brexit uncertainty, consumer confidence and spending remained optimistic last month, particularly online with promotions like Amazon’s Prime Day contributing to a 6.9 percent sales surge. Brick and mortar stores also enjoyed increased consumer attention in July, with a month-on-month growth of 1.6 percent in department store sales – the first upswing this year. GBP investors cheered the surprise result, hoping robust consumer spending might serve to prop-up the UK economy as it did at the start of 2019.
A rise in consumer confidence could also spare the UK from the spectre of a third-quarter recession.
At the same time, the US dollar traded steadily this morning as investors reacted to a perceived deterioration in the global economy and dumped riskier assets in favour of safe-haven currencies.
Contributing to these fears is the recent US bond yield curve inversion, an event traditionally marked as an early indicator of economic recession.
Conversely, limiting the upside in USD exchange rates this morning is the growing threat that a recession could force the Federal Reserve to act by lowering US interest rates.
Looking ahead, this afternoon will see the US release retail sales figures which could exert some pressure on the GBP/USD exchange rate.
Economists forecast expanded sales growth for a fifth consecutive month in July, which could strengthen the US dollar at the start of the US trading session.
The latest US industrial production figures will follow, potentially lending further support to USD exchange rates if factory output expanded again last month after stagnation in June.
With no more conspicuous UK data for the week, GBP investors will probably turn their focus back to political developments.
Brexit uncertainty on Friday will continue to drive Sterling, potentially limiting any upside in GBP exchange rates if the Irish backstop stalemate continues.