GBP/USD rose following the acceleration of BRC Like-For-Like Retail Sales growth to 1.0% YoY in September, surpassing market expectations. Tensions in the Middle East, coupled with increasing rate expectations, persist in enhancing demand for the safe-haven US Dollar. Markets are poised for the release of crucial US inflation data and speeches from Federal Reserve officials, which will likely influence future policy decisions. GBP/USD inched higher following modest losses the previous day, trading around 1.3220 during Asian hours on Tuesday. The pair appreciated as the British Pound gained ground following the release of British Retail Consortium Like-For-Like Retail Sales data. September sales rose by 1.0% compared to the same month last year, exceeding expectations of 0.7% and showing an acceleration from the 0.5% growth recorded in the prior month. Furthermore, Total Retail Sales growth accelerated to 1.3% from 0.7%, yet it continued to fall short of the 12-month average of 1.5%. Despite these gains, the GBP/USD pair may encounter challenges as the US Dollar could experience a resurgence.
Safe-haven demand for the Greenback may experience a resurgence in light of increasing tensions in the Middle East, following a lethal assault on Saudi Arabia’s Riyadh airport. The Saudi-led coalition engaged in military operations against Yemen’s Iran-backed Houthis has affirmed the continuation of drone and missile strikes targeting areas within Saudi Arabia. Concurrently, Yemen’s Armed Forces have issued a warning to travellers, indicating that no Saudi airspace or airports, with the exception of Mecca and Medina, can be considered secure. Meanwhile, traders are closely observing potential supply developments, which encompass the prospects for heightened Russian diesel supplies and the possibility of an energy ceasefire between Russia and Ukraine. On the US monetary policy front, markets largely anticipate that the Federal Reserve will maintain interest rates at their current level during the forthcoming meeting, while also factoring in the possibility of an additional rate increase in December. This follows the Fed’s September rate increase, which marked its first rate hike since 2023.
As we look ahead, market participants are focusing on the forthcoming data regarding existing home sales, alongside anticipated comments from Federal Reserve officials Christopher Waller, Tom Barkin, and Susan Collins. These updates arrive just prior to Wednesday’s September inflation report, which is anticipated to significantly influence the Fed’s forthcoming policy decision. Fed’s Hammack delivered a notably more hawkish tone, with the 8.4/10 FXS Speechtracker score standing above the 7.5/10 historical average, underscoring a stronger-than-usual bias toward tighter policy. The emphasis on the necessity for elevated interest rates, a restrictive approach to re-establish inflation at 2%, and apprehension that an inflationary mindset is becoming entrenched-amid neutral financial conditions and AI-driven demand pressures-indicates a preference for prompt, smaller rate adjustments to maintain a tight and responsive policy stance.
Hammack’s emphasis on widespread inflation, robust pricing power, and the necessity to elucidate the reaction function underscores the notion that the Federal Reserve ought not to take for granted that inflation expectations are firmly anchored, nor that the economy is resilient enough to endure additional tightening. The FXS Fed Sentiment Index increased by 0.59 points to 138.92, remaining solidly in hawkish territory and aligning with the heightened FXS Speechtracker score. This move higher reflects a clear shift toward tighter policy expectations, supporting a stronger Dollar narrative as markets price in the risk that the Fed may need to act relatively quickly to curb persistent inflation pressures.
