Fading Impact of Weaker US Inflation Sees Pound US Dollar Exchange Rate Falter
Support for the Pound to US Dollar (GBP/USD) exchange rate proved limited this morning even in the wake of the underwhelming US inflation data.
Demand for the US Dollar (USD) had weakened sharply on Wednesday in response to January’s inflation data, which failed to pick up as forecast.
With the headline inflation rate holding steady at 1.4% the risk of further Federal Reserve policy action to come lingered, to the detriment of USD exchange rates.
However, as the initial impact of the inflation data started to fade the GBP/USD exchange rate failed to hold onto its positive traction.
Without the support of fresh UK economic data Pound Sterling (GBP) soon came under renewed pressure against its rivals.
Lower Initial Jobless Claims Figure to Offer Fresh US Dollar Encouragement
Even so, the GBP/USD exchange rate could still find a fresh rallying point this afternoon on the back of the latest US initial jobless claims figure.
Any fresh signs of weakness within the US labour market could weigh heavily on demand for the US Dollar as worries over the economic outlook linger.
On the other hand, if initial jobless claims show signs of slowing on the week this could encourage USD exchange rates to push higher across the board once again.
Evidence of a tightening within the labour market may give investors greater cause for confidence, especially with fresh fiscal stimulus measures in the pipeline.
Weaker UK GDP Set to Weigh on GBP/USD Exchange Rate
Support for the Pound, meanwhile, looks set to remain muted in anticipation of Friday’s UK gross domestic product report.
Investors are wary of the potential for the fourth quarter GDP to deliver a downside surprise, given the economic disruption seen during the November lockdown.
If the quarterly growth rate falls into negative territory this could put significant pressure on GBP exchange rates, given the potential for a double-dip recession.
As growth looks set to come under even greater pressure in the first quarter, thanks to tightened national lockdown restrictions, any signs of weakness in the fourth quarter data may leave the Pound on the back foot.
US Dollar Looks for Boost on Stronger Michigan Consumer Sentiment Index
The mood towards the US Dollar may improve further ahead of the weekend if February’s Michigan consumer sentiment index picks up as forecast.
If the index strengthens from 79 to 80.8 as anticipated this could give USD exchange rates a fresh boost across the board.
Signs that consumer confidence has started to strengthen even in the face of ongoing Covid-19 concerns may give the US Dollar a solid leg up.
On the other hand, any fresh deterioration in sentiment may encourage the Pound to US Dollar exchange rate to recover some of its lost ground as doubts over the strength of the US economy persist.