Surprise Inflation Dip Weighs Heavily on US Dollar Exchange Rates
UPDATE: As the US consumer price index saw an unexpected dip on the year, easing from 1.8% to 1.7%, this helped to limit the downside potential of the Pound Sterling to US Dollar (GBP/USD) exchange rate.
This easing suggests that inflationary pressure within the US economy is not as strong as investors would like, giving the Federal Reserve greater incentive to cut interest rates.
Even so, as UK political worries persisted the GBP/USD exchange rate ultimately failed to return to a positive footing.
Modest UK House Price Balance Decline Unable to Boost Pound US Dollar (GBP/USD) Exchange Rate
A smaller-than-expected decline in the RICS house price balance for August failed to shore up the Pound Sterling to US Dollar (GBP/USD) exchange rate this morning.
Although the house price balance only saw a -4% decline on the month the mood towards Pound Sterling (GBP) remained generally muted.
Markets still see little cause for confidence in the outlook of the UK housing market, though, especially as a lack of Brexit-based clarity persists.
With prices looking set to remain in a state of decline ahead of the Brexit deadline, as political uncertainty is likely to deter buyers, the potential for GBP exchange rate gains proved limited.
USD Exchange Rates Fail to Maintain Bullishness as Fed Speculation Continues
While support for the US Dollar (USD) generally picked up on the back of August’s unexpectedly improved producer price index data this ultimately proved to be short-lived.
As the White House continued to level criticism at the Federal Reserve, keeping policymakers under pressure to cut interest rates more aggressively, the mood towards the US Dollar soured.
Even so, the stronger showing from producer prices suggests that this afternoon’s consumer price index reading could prove positive.
Although the consumer price index is not the Fed’s preferred measure of inflationary pressure an uptick here may still reduce the odds of further interest rate cuts.
If the Fed gains incentive to limit its monetary loosening this could see the GBP/USD exchange rate slump sharply.
Softening Retail Sales Forecast to Dent US Dollar
Demand for the US Dollar could deteriorate further ahead of the weekend, though, as forecasts point towards a weaker advance retail sales figure.
Weak sales would confirm a continued weakening of domestic consumer confidence, something which could drag on economic activity in the coming months.
However, if September’s University of Michigan consumer sentiment index recovers some of the previous month’s decline this may shore up USD exchange rates.
Evidence of greater confidence within the US economy, particularly as US-China trade tensions show signs of easing, could give the US Dollar a solid boost against its rivals.
Further GBP/USD Exchange Rate Losses Likely Ahead of UK Inflation Data
Looking ahead to next week, the GBP/USD exchange rate may shed further ground as anticipation builds for August’s UK consumer price index report.
With forecasts pointing towards a modest easing in inflationary pressure on the year the Pound could suffer a fresh bout of selling pressure.
If inflation falls back below the Bank of England’s 2% target this would give policymakers less incentive to leave interest rates on hold in the months to come.
An increased risk of a BoE interest rate cut could weigh heavily on the GBP/USD exchange rate as markets remain wary of the possibility of renewed monetary loosening.
The latest developments in the unfolding political drama surrounding Brexit and the prorogation of parliament may also put pressure on the Pound in the days ahead.