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A slew of soft U.S. economic data and positive headlines on a Ukraine peace deal have weighed on the dollar.
The pound to dollar exchange rate has jumped 0.60% on the day to trade at 1.3183 after a number of U.S. data releases raised the odds of a December interest rate cut at the Federal Reserve.
"The pound enjoys a stellar day against the dollar, but this looks more like greenback weakness than a sudden surge of irrepressible optimism about the UK economy as the clock ticks down to the long-awaited/dreaded Budget," says Chris Beauchamp, Chief Market Analyst at IG.
Headline retail sales rose by 0.2% m/m in September, which was well below expectations for a 0.4% gain in the month. The control group of sales, which feeds more directly into non-auto goods consumption in GDP, declined by 0.1% (vs. +0.3% consensus).
The data hints at a more cautious consumer who will limit demand-led inflation in the coming months.
"A couple of years of high spending, worries about the job market, and tariffs are all factors that could be causing the consumer to slow the pace of spending, which we expect to become a more durable trend over time," says Ali Jaffery, an economist at CIBC Capital Markets.
Adding to the sense of increasing household caution was the Conference Board's Consumer Confidence index, which dropped to 88.7 in November, from an upwardly revised 95.5 in October, putting it below the consensus, 93.3
"The plunge in consumers’ confidence in November—to the lowest level since the initial tariff shock in April—was mostly due to a sharp fall in its expectations component, which is a better guide than the headline index to growth in consumers’ spending," says Oliver Allen, Senior U.S. Economist at Pantheon Macroeconomics.
Elsewhere, the Producer Price Index of inflation came in on target at 0.3% in September, although the core measure undershot expectations for 0.2% m/m by coming in at 0.1%.
These data all lean in favour of the Federal Reserve lowering interest rates next month.
This shift in favour of cut is clearly reflected in the softer dollar.
Also weighing on the safe-haven dollar was news of progress on the Ukraine war.
ABC News reports that although "minor details" still need to be resolved, "the Ukrainians have agreed to the peace deal".
Karoline Leavitt, Donald Trump’s press secretary, said there were a “few delicate, but not insurmountable, details” that must first be sorted out.
She said further talks would take place between Russia, Ukraine, and the U.S.
The news points to growing ex-U.S. optimism into year-end, which traditionally weighs on the dollar.