Rising US Inflation Boosts Pound Sterling US Dollar (GBP/USD) Exchange Rate
As the headline US consumer price index surpassed forecasts to clock in at 2.1% the Pound Sterling to US Dollar (GBP/USD) exchange rate gained a fresh leg higher.
Although the CPI is not the Federal Reserve’s preferred measure of inflation this latest uptick still gave investors reason to bet that further interest rate cuts are on the table in the coming months.
With the Fed already under pressure to cut interest rates more aggressively thanks to interventions from the White House, the data left the US Dollar (USD) on the back foot ahead of the December meeting.
While policymakers are not expected to deliver any change in monetary policy tonight the potential for fresh dovish commentary remains, to the detriment of USD exchange rates.
Pound Exchange Rates Remain Positive Ahead of UK Election Day
Support for Pound Sterling (GBP), meanwhile, remained strong on the final day before the UK returns to the polls for its snap general election.
Even though the opinion polls have seen a narrowing of the apparent Conservative lead this failed to dent the GBP/USD exchange rate at this stage.
However, once the results of the vote become clear the Pound could prove vulnerable to a renewed bout of selling pressure.
If the election delivers another hung parliament, rather than the Conservative majority that investors have priced in, the GBP/USD exchange rate looks set to slip further from its recent seven-month high.
USD Exchange Rates Vulnerable Ahead of US Producer Price Indexes
Worries over the US inflation outlook could mount further on Thursday on the back of November’s producer price index data.
Further evidence that inflationary pressure in the world’s largest economy is continuing to pick up would give the Fed greater incentive to cut rates sooner rather than later in 2020.
On the other hand, a weaker set of producer price indexes could offer the US Dollar a rallying point against its rivals.
A stronger month of retail sales may also encourage USD exchange rates to recover some of their lost ground ahead of the weekend.
As long as the US economy can demonstrate greater signs of resilience in the face of ongoing trade tensions this should limit the downside potential of the US Dollar.
Election Fallout and Brexit Speculation Set to Dominate Pound Outlook
The outcome of the general election looks set to remain the major driving force of the GBP/USD exchange rate heading into the weekend, however.
Once the political fallout of the result starts to settle, though, the issue of Brexit will return to the forefront of investors’ minds.
As the future relationship between the UK and EU remains uncertain the Pound may struggle to find any particular source of confidence before the end of the year.
If the risk of a hard Brexit scenario appears to increase in the wake of the election the GBP/USD exchange rate could experience a sharp decline.