Pound US Dollar Exchange Rate Steady after UK Inflation-Driven Rally

Pound US Dollar Holds in Narrow Range ahead of UK Retail Sales Data

(Updated 16:00, 18/11/21) The Pound US Dollar (GBP/USD) exchange rate remained subdued through Thursday’s European session, slightly down by just under 0.1% on the day’s opening levels to trade at $1.3478.

In the absence of notable UK data releases, a lack of reports in developments in UK-EU talks on the Northern Ireland protocol, and while investors assess the likelihood of the Bank of England (BoE) raising interest rates at its December policy meeting, the Pound lacked drivers of movement.

Meanwhile, USD exchange rates struggled as its negative correlation with a stronger Euro limited the ‘Greenback’s movement.

US initial jobless claims failed to provide meaningful support to the US Dollar, with new claims missing forecasts and ticking very slightly lower to 268,000, still at a pandemic low.

Although initial jobless claims suggest the US job market recovery is likely on the right track, the data failed to encourage investor to make significant bets.

UK retail sales may drive more significant movement in GBP/USD tomorrow morning, as forecasts point to growth of 0.5% in October for the first time in six months.

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Pound US Dollar (GBP/USD) Exchange Rate Rangebound

The Pound US Dollar (GBP/USD) exchange rate is trading in a narrow range this morning after soaring UK inflation in October drove Sterling’s gains on Wednesday.

GBP/USD gained approximately 0.5% during yesterday’s session to hit a one-week high, with the pairing trading at $1.3492 at the time of writing on Thursday morning.

Pound (GBP) Pauses Inflation-Driven Rally

The Pound (GBP) has paused from yesterday’s rally so far today, appearing to slow on caution from investors as to whether the Bank of England (BoE) will alter its policy stance at its December meeting, and another jump in natural gas prices.

Sterling received a boost on Wednesday following the UK inflation data release for October on increased bets of a rate hike from the BoE.

Inflation in the UK jumped to 4.2%, up from 3.1% in September and above forecasts of 3.9%.

Combined with data indicating UK unemployment fell to 4.3% in the three months to September, and a 160,000 increase of employees on company payrolls after the furlough scheme ended, the likelihood of a rate hike from the BoE seemed to increase, boosting GBP.

However, doubts remain whether the central bank’s monetary policy committee (MPC) members will alter their stance to hike rates in December.

Energy and petrol prices acted as the main drivers of inflation in October, which many MPC members consider temporary, while forecasts already point to inflation hitting 5% by April.

Some analysts also suggest inflation in wage growth not yet appearing to become entrenched, and soaring job vacancies may mean the BoE will leave rates unchanged.

Meanwhile, natural gas prices jumping again after Germany’s regulator suspended the process for the Nord Stream 2 pipeline have fuelled concerns over the disruption it could cause businesses and consumers in the UK.

US Dollar (USD) Subdued as Treasury Yields Slip

The US Dollar (USD) is lacking direction so far today after recent gains against many of its currency peers, except the Pound.

Softening US Treasury yields have caused USD exchange rates to weaken, while an improvement in market sentiment is also weighing on demand for the safe-haven currency.

Growing speculation over President Joe Biden’s decision whether to replace current Federal Reserve chair Jerome Powell with Fed Governor Lael Brainard appears to be limiting the US Dollar.

Meanwhile, comments from Chicago Federal Reserve President Charles Evans also failed to drive movement in the US Dollar after he reiterated the central bank’s stance from its last policy meet and gave little away about an interest rate hike, saying:

“We learned back in 2013 that tapering these asset purchases was preferable for financial market functioning; that if we did a sudden stop on our purchases that wasn’t well received.

“It’s going to take us until the middle of next year to complete that; we are going to be mindful of inflation; we’re going to be looking to see how much additional accommodation is boosting inflation; if indeed that is the case, we’ll be thinking about when the right time to start raising rates will be.”

Pound US Dollar Forecast: UK Retail Sales in Focus

The Pound US Dollar exchange rate may remain subdued in today’s trading ahead of UK retail sales data on Friday morning.

Forecasts point to UK retail sales returning to 0.5% growth in October for the first time after five months of contraction.

US initial jobless claims released this afternoon may provide the US Dollar with some support if they surprise by falling more than the 260,000 forecast and add to the case that the US jobs market is recovery quickly.

Shifting risk appetite, Northern Ireland protocol talks between the UK and EU, and comments from BoE and Fed policymakers will also continue driving GBP/USD movement.

Andrew Roberts

Contact Andrew Roberts