Pound US Dollar (GBP/USD) Exchange Rate Climbs, Risk-On Mood Weighs Upon USD

Pound US Dollar Exchange Rate Firms as Investors Shrug Off Slowing UK Inflation

(Updated 17:00, 20/20/2021) The Pound (GBP) has managed to climb against the US Dollar (USD) this afternoon as investors accept economists’ views that September’s dip in inflation is temporary, and will not threaten prospects of an early Bank of England (BoE) rate hike.

According to Melanie Baker, senior economist at Royal London Asset Management:

‘UK inflation remains elevated and although we may not have seen another big jump in the CPI measure of inflation in September, there is more to come. Energy bills are among factors set to help push consumer price inflation further above the Bank of England’s target in the near term.’

Meanwhile, USD remains subdued by a risk-on trading mood, despite global inflationary concerns, a pickup of UK Covid cases and the collapse of a potential sale by Chinese real estate developer Evergrande of its property services unit.

Original article continues below:

GBP/USD Exchange Rate Fluctuates as UK Inflation Misses Expectations

The Pound US Dollar (GBP/USD) exchange rate is trading in a narrow range this morning as markets digest fresh inflation data from the UK. The Consumer Price Index (CPI) for September fell to 3.1% from 3.2% in August.

At the time of writing, GBP/USD is trading at $1.3778, down slightly from today’s opening levels.

Pound (GBP) Trades in a Mixed Range as Markets Digest Inflation Data

The Pound (GBP) is trading mixed against its peers this morning as UK inflation prints below expectations. The fall in consumer prices comes despite rising petrol prices and supply chain difficulties.

The Office for National Statistics (ONS) commented that the effect of the government’s eat out to help out scheme had dropped out of the calculation for the annual inflation rate, skewing the data somewhat: restaurant prices rose in September last year after the end of Rishi Sunak’s discount scheme.

Inflation still remains high – prior to August, the last time overall inflation was at 3.1% or higher was 2017.

Economists observe that upwards pressure on living costs remained in place across much of the economy last month, with the cost of factory goods rising in addition to road freight costs, food, drink, second-hand cars and air travel.

Petrol prices are also soaring to the highest level in eight years: as the figures reflect a period before panic buying at the end of September, further cost increases have not yet been factored in.

According to Yael  Selfin, KPMG UK’s chief economist:

‘We expect further increases in inflation from October, which could reach around 4% by the end of the year, with the recent rise in wholesale energy prices passed on to households.’

US Dollar (USD) Range Bound Ahead of EU and Canadian Data, Fed’s Beige Book

The US Dollar (USD) is trading in a mixed range today as investors await key data from Canada and the Eurozone. Despite an uncertain market mood – which usually draws support towards the safe-haven dollar – ‘Greenback’ support is wavering.

Lending upside support to the US Dollar, US bond yields are climbing, resuming an uptrend that has been underway since late September when the Fed signalled it would begin tapering its monthly bond purchases by the end of 2021.

Worries that the recent rally in commodity prices will stoke inflation have been fuelling speculation about a potential rate hike in 2022, pushing the yield on the 10-year US government bond to its highest level since May.

In the absence of any major economic releases from the US, scheduled speeches by Chicago’s Federal Reserve President Charles Evans and Fed Governor Randal Quarles may be the main market-movers today. The Fed’s beige book will also be published later on, ahead of November’s FOMC meeting, summarising economic conditions as observed by each of the 12 regional Fed banks.

Pound US Dollar Exchange Rate Forecast: US Jobless Data to Influence Trading?

Trading through the remainder of today’s session is likely to be influenced by inflation data from Canada and the Eurozone. If inflationary pressures are significantly increased, the US Dollar may find support on its safe-haven status.

Into tomorrow, US jobless data may influence the Pound US Dollar exchange rate, with initial jobless claims expected to increase.

Meanwhile, UK business optimism is forecast to fall, potentially weighing upon Sterling sentiment.

Olivia Evershed

Contact Olivia Evershed