GBP/USD Exchange Rate Firms on Rising Market Optimism
The Pound to US Dollar (GBP/USD) exchange rate continues to make steady gains this morning, amidst rising market optimism ahead of Joe Biden’s inauguration.
At the time of writing the GBP/USD exchange rate is trading at around $1.3692, up roughly 0.3% from this morning’s opening rate.
US Dollar (USD) Weakens as Biden’s Inauguration Looks to Cheer Markets
The US Dollar (USD) finds itself on the back foot against the Pound (GBP) and the majority of its other peers this morning as demand for the safe-haven ‘Greenback’ is dented by the growing market optimism ahead of Joe Biden’s inauguration as US President.
Following on from comments from incoming Treasury Secretary Janet Yellen, who urged lawmakers to ‘act big’ with coronavirus relief, there is growing hope that Biden will seek to usher in some major spending commitments in addition to the $1.9 trillion stimulus package.
Biden is expected to ‘hit the ground running’ with reports suggesting that he will seek to sign a flurry of executive orders in the hours following his inauguration.
We don’t have a second to waste when it comes to tackling the crises we face as a nation. That’s why after being sworn in tomorrow, I’ll get right to work. https://t.co/QBrS17mle8
— Joe Biden (@JoeBiden) January 20, 2021
USD investors will be paying close attention to these orders as they seek to assess their potential economic impact.
However, the cheery market mood could come under some pressure if there is any sign that Biden might be prioritising tax hikes as part of his policy blitz.
Pound (GBP) Firms on Upbeat Inflation Figures
Meanwhile, the Pound (GBP) is firming this morning, following the release of the UK’s consumer price index (CPI).
According to data published by the Office for National Statistics (ONS) domestic inflation accelerated from 0.3% to 0.6% in December, slightly ahead of forecasts for a rise of 0.5%.
#UK #consumer price #inflation rose slightly more than expected to 0.6% in December (consensus: 0.5%) from 0.3% in November. Main upward impact on inflation from clothing prices, transport costs & recreation & culture. Core inflation up to 1.4% from 1.1%. Food had downward impact
— Howard Archer (@HowardArcherUK) January 20, 2021
The main drive behind the stronger-than-expected uptick in inflation were rising transport costs, and an increase of priced for clothing and recreational items.
While this still leaves inflation well below the Bank of England’s (BoE) 2% target, analysts suggest inflation is likely to accelerate rapidly in the months to come.
Thomas Pugh, an economist at Capital Economics, suggests:
‘Inflation will probably start to rise more sharply from April when the temporary VAT cut for the hospitality sector is reversed and the recent rises in agricultural and energy commodities start to make themselves felt. Together these forces could lift inflation to more than 2% by the end of the year.’
GBP/USD Forecast: UK PMI Release Still to Come This Week
Looking past the inauguration, the key catalyst of movement in the Pound to US Dollar (GBP/USD) exchange rate, in the latter half of this week looks to be the publication of the UK’s latest PMI figures.
January’s preliminary release is expected to report that, unsurprisingly, the national lockdown led to UK economic activity contracting, but will a larger-than-expected slump prompt a Sterling sell-off?
In the meantime, tomorrow’s US initial jobless claims will be closely watched by USD investors, who are wary that new claims could have topped 1 million last week, having rocketed to 965,000 the previous week.