US Dollar (USD) Muted In Spite of Strong US PPI Figures
Updated 14:40, 14/12/21) As today’s session has progressed, the Pound US Dollar exchange rate (GBP/USD) has increased slightly, trading at around $1.3234.
The latest US producer price index has printed above expectations, coming in at 0.8% in November against forecasts of a more modest rise to 0.5%.
However with USD investors reluctant to make any aggressive bets ahead of the Federal Reserve’s interest rate decision tomorrow, the US Dollar has been unable to benefit from the above forecast rise in producer prices.
Meanwhile, the Pound is trading with limited gains as Omicron concerns continue to overshadow this morning’s positive employment data.
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GBP/USD Exchange Rate Flat Despite Positive Employment Data
The Pound US Dollar (GBP/USD) exchange rate is mostly rangebound so far this morning as the UK’s positive employment data fails to boost GBP’s appeal due to diminishing rate hike bets ahead of Bank of England’s (BoE) meeting on Thursday.
At the time of writing, the GBP/USD exchange rate is trading in narrow range at around $1.3219 with minimal market movement.
Pound (GBP) Facing Headwinds Despite Optimistic Data
The Pound US Dollar exchange rate (GBP/USD) is muted at the beginning of today’s session despite strong UK employment data revealed this morning.
The UK’s unemployment declined from the previous 4.3% to 4.2% in October and further suggests that the UK economy is recovering well since the pandemic.
However, this strong employment data has done little to provide fresh impetus from GBP investors.
Tony Wilson, director at the Institute for Employment Studies, said:
‘On the face of it, today’s figures are some rare good news for the government, with unemployment now dropping fast towards pre-crisis levels, employment rising and more than twice as many vacancies as there were last Christmas.
‘But beneath the headlines there is plenty here that will be concerning the government and Bank of England.
‘Despite record vacancies and the tightest labour market in our lifetimes, the number of people out of work and not looking for work is rising, perhaps pushed up by people leaving the labour market entirely at the end of furlough.’
Moreover, the ongoing concerns of the recently-identified coronavirus, Omicron, is dampening Sterling’s potential due to the uncertainties surrounding the UK government’s decisions with regards to another lockdown.
This has caused rate hike bets to fall ahead of Bank of England’s (BoE) December meeting later this week.
US Dollar (USD) Flat Ahead of Fed Policy Announcement
The US Dollar (USD) is also trading in a narrow range this morning as USD are reluctant to make any aggressive bets ahead of Federal Reserve’s policy decision on Wednesday.
Presently, interest rates are forecast to remain unchanged at 0.25%, however Chairman, Jerome Powell’s hawkish attitude last week has caused expectations that the Fed’s monetary policy may be tightened sooner-rather-than-later.
Gregory Daco, chief U.S. economist at Oxford Economics, said:
‘If Powell is in the camp of two rate hikes next year, that’s a fairly strong indication that you’ll get rate lift-off in the middle of next year.
‘The uncertainty to the outlook has increased. That will be a feature of next year’s environment where you have less certainty as to what monetary policy will be and less certainty to what the economic outlook is going to be.’
In addition, the current Omicron situation is driving further uncertainty into the US economy as case numbers rise and the severity of the new strain remains relatively unknown.
GBP/USD Exchange Rate Forecast: BoE and Fed Decisions at Centre of Attention
Looking ahead, the Pound US Dollar exchange rate is likely to be driven primarily by the BoE’s and the Fed’s upcoming interest rate decisions.
Should the Fed announce plans to accelerate the tapering of its bond purchases then the US Dollar is likely to surge.
On Thursday, the Bank of England (BoE) will conclude its own policy meeting, which is expected to see the bank opt to keep interest rates on hold at 0.1%.
Furthermore, the UK’s latest retail sales figures will be published on Friday, with Novembers figures forecast to report sale growth will have accelerated from 0.8% to 1%, potentially lending some support to Sterling.