Pound US Dollar Exchange Rate Rises as US Inflation Beats Expectations
(Updated 16:24 11/08/2021) The GBP/USD exchange rate rose this afternoon following the release of the latest US inflation data, which rose above forecasts in July, hitting 5.4% annually. The pairing is currently fluctuating around $1.38.
Ambrose Crofton, global market strategist at J.P. Morgan Asset Management, said:
‘While a good amount of inflation can be attributed to these temporary factors, there are signs that underlying price pressures that could prove more persistent continue to build.
‘Today’s inflation print is the latest in a string of strong economic releases that should raise the pressure on the Federal Reserve to announce the tapering of its asset purchases sooner rather than later.’
As a result, demand for the safe-haven ‘Greenback’ has suffered, with markets becoming more optimistic about the outlook for the global economy and seeking out riskier assets instead.
Meanwhile, Pound investors have remained cautious, eyeing the latest Covid-19 data as cases continue to head higher.
Pound US Dollar Exchange Rate Falls, Could a Recovering US Economy Inspire Fed Optimism?
The Pound US Dollar (GBP/USD) exchange rate dipped slightly this morning ahead of the publication of the latest US inflation data for July. USD investors are in wait-and-see mode, while analysts suggest a strong figure could be ‘Greenback’-positive. The pairing is currently fluctuating around $1.38.
ActivTrades analyst Anderson Alves explains:
‘A strong reading in the headline and core U.S. Consumer Price Index could keep supporting the USD in the short term.
‘It might put some pressure on U.S. yields, which could change the global market flows for the weeks ahead as traders might have to review U.S. inflation expectations and reprice the Fed’s future actions.’
Jun Rong Yeap, an analyst at IG, said:
‘A higher-than-expected reading may suggest inflation being more persistent and increase the risk of an earlier tapering timeline from the [Federal Reserve].’
US inflation is expected to head higher in July, but remain below levels seen in recent months, while the annual rate – according to Lloyds Bank – is expected to hit 5.3%.
Today will also see speeches from key members of the Federal Reserve, including Kansas City President George, who is notably ‘hawkish’ when it comes to policy.
Could an increasingly optimistic outlook for the US economy drive-up the USD to GBP exchange rate this afternoon?
Pound (GBP) Exchange Rate Dips as Thursday’s GDP Data Takes Centre Stage
The Pound (GBP) dipped against the major currencies today because of a lack of UK economic data releases.
However, GBP investors are looking ahead to Thursday, which will see the release of the latest GDP figure for the second quarter. It is widely expected that the economy will have rebounded strongly in the second quarter, following the third national lockdown at the beginning of this year.
Analysts at ShareCast commented:
‘Expectations are that GDP grew at a quarter-on-quarter pace of 4.8% over the three months to June and by 1.0% month-on-month in the last month of thee quarter.’
Nonetheless, the UK economy is expected to remain below pre-pandemic level. The Bank of England (BoE), however, has previously stated that the economy will get there by the fourth quarter.
With daily Covid-19 cases steadily rising along with hospitalisations, Pound investors are however remaining cautious.
Any indications that the NHS could once again be overwhelmed in autumn and winter would drag down the GBP/USD exchange rate.
Pound to US Dollar Outlook: Could Strong UK Growth Boost Sterling?
Tomorrow will see the preliminary UK gross domestic product figure for the second quarter. Any indications of sustained growth in the British economy would be Pound-positive.
Tomorrow will also see the release of the latest industrial and manufacturing production figures for June. Could an uptick drive up the Pound to US Dollar exchange rate?
US Dollar (USD) traders will eye tomorrow’s release of the latest initial jobless claims for the week ending on 6 August.
If US unemployment continues to fall, then the ‘Greenback’ would head higher on growing confidence in the world’s largest economy.