Pound US Dollar Exchange Rate Reverses Gains Following Surprise Acceleration in US Inflation

GBP/USD Exchange Rate Stumbles as US Inflation Rises

(Updated: 14:20, 13/10/21) The Pound US Dollar exchange rate has relinquished the majority of its initial gains this afternoon, following the publication of the latest US CPI figures.

September’s CPI print reported a surprise acceleration of headline inflation, as it rose to 5.4% versus forecasts it would remain on hold at 5.3%.

While the reading was not enough to trigger fresh concerns that inflation might be about to accelerate sharply again, it appears to have been sufficient enough to reaffirm expectations the Federal Reserve will make a tapering announcement next month.

Meanwhile, Sterling sentiment has been sapped by news reports suggesting that congestion at UK ports is likely to impact the availability of some goods over the Christmas period.

Original article continues below:

Pound US Dollar Exchange Rate Buoyed in Initial trade

The Pound US Dollar (GBP/USD) exchange rate is ticking higher so far this morning, ahead of the publication of the latest US inflation figures later this afternoon.

At the time of writing the GBP/USD exchange rate is trading at around $1.3634, up roughly 0.4% from this morning’s opening levels.

US Dollar (USD) Stumbles ahead of US Inflation

The US Dollar (USD) is trending lower against the Pound (GBP) and the majority of its other peers so far this morning as USD investors reposition ahead of this afternoon’s US consumer price index.

The US CPI figures looks to potentially be the key economic release of the week, as it could influence the Federal Reserve’s plans to begin tightening its monetary policy.

This could see the US Dollar rebound later this afternoon as economists forecast that US inflationary pressures will have remained elevated last month, and support the Fed’s intentions for a tapering announcement next month.

Economists at RBC Economics suggest:

‘US CPI for September will likely show another elevated YoY gain though the monthly pace of price increases is expected to remain smaller than the April-June surge during the initial reopening of the economy. Most of the increase in producer input costs has yet to flow through to consumer prices. The longer supply chain disruptions last and commodity prices remain elevated, however, the more likely price pressures become more pervasive and pronounced.’

Pound (GBP) Enjoys Modest Gains Following Mixed GDP Release

At the same time, the Pound (GBP) is trending broadly higher this morning, following the release of the latest UK GDP figures, after they revealed economic growth rebounded in August.

According to data published by the Office for National Statistics (ONS), domestic GDP rose 0.4% in August, up from a downwardly revised -0.1% in July.

This rebound in growth was attributed to the end of July’s ‘pingdemic’, which saw economic activity suppressed as one million people were told to self-isolate as the economy reopened.

However, the rebound in growth was still weaker than the 0.5% expansion that had been forecast, which coupled with concerns GDP will have subsequently stalled in September amidst the UK’s deepening supply chain crisis, appears to have tempered the Pound US Dollar exchange rate gains this morning.

Pound US Dollar Exchange Rate Forecast: Hawkish FOMC Minutes to Boost USD Demand?

Looking past the US inflation release, movement in the Pound US Dollar (GBP/USD) exchange rate today, could also be influenced by the publication of the minutes from the Fed’s September policy meeting.

USD investors will pay close attention to the Federal Open Market Committee (FOMC) minutes as they look for further insight into how confident the Fed as it looks to start tapering its asset purchases in the near-term.

Meanwhile, the focus for GBP investors through the second half of this week is likely to be a couple of scheduled speeches by Bank of England (BoE) policymakers, with the Pound potentially surging if they strike a similarly hawkish tone to their colleague Michael Saunders.

Matthew Andrews

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