Pound US Dollar Exchange Rate Tumbles as US Inflation Smashes Forecasts

Pound US Dollar Exchange Rate Retreats as US Inflation Continues to Surge 

(Updated 14:00, 13/7/21) The Pound US Dollar (GBP/USD) exchange rate is trading at around $1.3819 this afternoon, down roughly half a cent from the day’s opening levels. 

The slump in GBP/USD comes as the US Dollar is turbocharged by the latest US consumer price index, after it printed at 5.4% in June. 

This was up from 5% in May and smashed expectations domestic inflation would have slowed to 4.9% last month. 

The latest surge in US inflation will bolster speculation that the Federal Reserve will be forced to act sooner than anticipated in tightening its monetary policy. 

Original article continues below: 

Pound US Dollar Exchange Rate Stumbles as BoE Outlines Potential Economic Risks 

The Pound to US Dollar (GBP/USD) exchange rate is on the back foot this morning, following a warning from the Bank of England (BoE) regarding potential risks to the UK’s economic recovery. 

At the time of writing the GBP/USD exchange rate is trading at around $1.3846, up roughly 0.6% from this morning’s opening rate. 

Pound (GBP) Dented by BoE’s Financial Stability Report 

The Pound (GBP) is trending lower against the majority of its peers this morning as investors digest the Bank of England’s latest Financial Stability Report. 

The report warns of there are signs of ‘increased risk taking’ in global financial markets, which the BoE fears could prompt a ‘sharp correction in asset valuations’, which in turn could hurt businesses and consumers in the UK if it forces central banks to start tightening monetary policy earlier than currently expected. 

The BoE goes on to outline how monetary and fiscal stimulus has been vital in keeping businesses afloat throughout the coronavirus pandemic and that some will be at risk of insolvency as these measures begin to be unwound. 

The BoE’s The Financial Stability Report, read: 

‘The UK financial system has provided support to households and businesses to weather the economic disruption from the Covid pandemic… 

‘But as the economy recovers and government support unwinds as planned, some businesses may face additional pressure on their cash flow and insolvencies could increase.’ 

GBP investors are understandably unnerved by the BoE’s report, as many are already concerns about how the unwinding of the UK’s furlough scheme could undermine the country’s economic recovery. 

US Dollar (USD) Firms ahead of US Inflation Figures 

At the same time, the US Dollar is ticking higher this morning, ahead of the publication of the latest US consumer price index. 

Consensus estimates predict that US inflation will have slowed modestly in June from a 12-year high of 5% to 4.9%, potentially placing some pressure on the US Dollar as it feeds into the Federal Reserve’s stance that the recent surge in inflation is ‘transitory’. 

However at the same time, US inflation has repeatedly overshot expectations this year, and another acceleration in price growth could catapult USD exchange rates higher. 

Pound US Dollar Forecast: UK Inflation also in the Spotlight 

Looking past this afternoon’s US CPI release, the main catalyst of movement in the Pound to US Dollar (GBP/USD) exchange rate tomorrow will be the publication of the UK’s own CPI figures. 

These are forecast to report another acceleration of domestic inflation, which could help to propel Sterling higher, if GBP investors believe it will put more pressure on the BoE to start tapering its bond purchases this year. 

Meanwhile, Jerome Powell will begin a two-day testimony before Congress on Wednesday, with the Fed Chair likely to be grilled on his outlook for the US economy as well as the Fed’s stance on monetary policy. 

Matthew Andrews

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