Pound US Dollar (GBP/USD) Exchange Rate Recovers as USD Slips Post CPI
(Updated 16:30, 10/12/21) The Pound US Dollar (GBP/USD) exchange rate has bounced back this afternoon amid some USD profit-taking.
The ‘Greenback’ dropped sharply following the latest US CPI as investors decided to sell the currency while it was strong. Although US inflation rose to 6.8% – its highest level since 1982 – this was in line with market expectations. And with traders already expecting the Federal Reserve to speed up its tapering plans next week, the high CPI failed to trigger an upside.
GBP/USD ended the European session at around $1.3226, about 0.2% up from today’s lows.
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Pound US Dollar (GBP/USD) Exchange Rate Dips on UK GDP
The Pound US Dollar (GBP/USD) exchange rate has fallen today after UK GDP growth slowed to near stagnation.
USD investors await the latest US inflation rate reading, which could send the US Dollar (USD) soaring.
Pound (GBP) Slips as UK GDP Growth Slows to Near Stagnation
The Pound (GBP) is on the back foot once again today after the UK’s latest GDP figure fell far short of forecasts.
Economists had expected UK GDP to have grown by 0.4% in October. Instead, GDP grew by a mere 0.1%, slowing to near stagnation.
Growth in the services sector expanded by 0.4%, thanks to higher shop spending and more face-to-face GP appointments. However, production – which includes manufacturing, energy, and oil and gas – fell by 0.6%. Construction dropped by 1.8% – its steepest decline since the pandemic began – as global supply chain issues continue to disrupt the sector.
The latest data raises concerns about the resilience of the UK’s economic recovery, particularly with Omicron posing a potential threat.
Chancellor Rishi Sunak said that the new data is not cause for concern:
‘We’ve always acknowledged there could be bumps on our road to recovery but the early actions we have taken, our ongoing £400bn economic support package and our vaccine programme mean we are well placed to keep our economy on track.’
However, the hospitality industry is warning that the new Covid Plan B restrictions will hit it hard. Businesses and unions are calling for more government support, including reintroducing the furlough scheme.
US Dollar (USD) Quiet amid Mixed Market Mood
Meanwhile, the US Dollar (USD) is quiet so far today as a tepid market mood leaves the safe-haven currency without a clear direction. Still, the ‘Greenback’ is gaining on the weakening Pound.
USD investors are awaiting the latest US inflation reading this afternoon, so the US Dollar may move in a relatively narrow range until we get closer to the data release.
Economists expect US inflation to hit a near 40-year high, which would likely fuel expectations that the Federal Reserve will speed up its tightening of monetary policy, thereby boosting USD.
GBP/USD Exchange Rate Forecast: US Dollar to Surge on CPI Reading?
The US CPI is the main event for GBP/USD today. If the reading comes in as forecast, or higher, then the US Dollar could surge against the Pound.
Before then we could see Sterling continue to slip as markets pick apart the latest GDP data. Any new updates about the impact of Omicron or the government’s Plan B strategy, or more political jitters in the UK, could also impact GBP/USD.