GBP/USD Update: US Dollar Slides as Trump Threats Spook Markets
After dipping earlier this afternoon the Pound to US Dollar (GBP/USD) exchange rate has begun to push higher once again due to geopolitical fears
The US Dollar has come under renewed pressure as US President Donald Trump stepped up his rhetoric against Russia regarding a chemical weapons attack in Syria.
In a tweet, Trump suggested that Russia should ‘get ready’ for US missile strikes in Syria, something that has unnerved many USD investors who fear that it could escalate tensions with Moscow.
Meanwhile the Pound appears to be finding its feet again as GBP investors eye tomorrow’s speech from Mark Carney.
GBP/USD Subdued as US Inflation Bolsters Fed Rate Hike Speculation
The Pound to US Dollar (GBP/USD) exchange rate struggled to find any gains today as markets welcomed the latest US inflation figures.
At the time of writing GBP/USD is largely unmoved from today’s opening levels, but down nearly 0.2% from its high struck earlier this morning.
US Dollar (USD) Strengthens as Inflation Picks Up
The US Dollar rallied firmly against the Pound today, as markets reacted to the latest US Consumer Price Index (CPI).
According to data published by the US Labour Department, headline inflation jumped from 2.2% to 2.4% in March, the fastest pace of growth in a year.
Core inflation was also showed to have picked up last month as well, jumping from 1.8% to 2.1%, prompting another round of rate speculation.
While the Federal Reserve suggested last month that there are only three rate hikes have been tabled this year, today’s data has added to speculation that there could still be up to four hikes if inflation and wage growth remain robust.
Sal Guatieri, a senior economist at BMO Capital Markets in Toronto said:
‘U.S. inflation is warming up rather than heating up. Still, the upward trend could suffice to nudge the Fed three more times this year.’
Pound (GBP) Dented by Weak Production Data
Meanwhile the Pound stumbled from a two-week high earlier this morning following the release of the UK’s latest industrial production figures.
The Office for National Statistics (ONS) reported that industrial output growth slumped from 1.3% to 0.1% in February, falling below expectations of a more modest slide to 0.4%.
Some analysts forecast that the weak production figures, in combination with last week’s lacklustre PMI figures point to the UK economy expanding by only 0.2% in the first quarter.
This in turn has led to suggestions that the chances of two rate hikes from the Bank of England (BoE) this year have lessened.
Economists at EY Item Club said:
‘While the weakened February data may surprise the Bank of England and provide some food for thought, the odds remain strongly in favour of the monetary policy committee pressing ahead with a 25 basis point interest rate hike to 0.75% at their May meeting.
However, expectations of another hike in November may well be diluted.’
GBP/USD Exchange Rate Forecast: Will Carney Speech Help GBP to Rebound?
Looking ahead the GBP/USD exchange rate may see a rally again on Thursday as markets await a speech from BoE Governor, Mark Carney.
Markets will be watching closely for any more hints that a rate hike may be imminent, with the Pound likely to find some strength if Carney appears optimistic about raising interest rates in May as forecast.
In the meantime the US Dollar could find some gains later this evening with the release of the minutes from the Fed’s policy meeting last month, should investors see them in a more favourable light in the wake of today’s inflation figures.