Pound US Dollar Exchange Rate Boosted as Dollar Falls After Fed Testimony

(Updated 16:46 11/01/21)

The Pound US Dollar (GBP/USD) exchange rate has continued to climb following testimony by US Federal Reserve Chair Jerome Powell. Market reaction has been mixed with analysts concerned that the Fed is still not doing enough to combat record-high inflation.

At time of writing the GBP/USD exchange rate is at around $1.3619, which is up roughly 0.3% from this morning’s opening figures.

Pound US Dollar (GBP/USD) Exchange Rate Boosted as UK Eases Covid-19 Testing

The Pound US Dollar (GBP/USD) exchange rate has climbed today, with the further easing of UK Covid-19 testing requirements and positive UK retail sales data likely cause of GBP’s rise.

At time of writing the GBP/USD exchange rate is at around $1.3614, which is up roughly 0.25% from this morning’s opening figures.

Pound (GBP) Buoyed by Further Easing of Covid-19 Measures

The Pound (GBP) has largely risen against its rivals today, as the currency saw a boost from optimistic retail sales data and the further easing of Covid-19 testing requirements.

Reports on Monday indicated that Prime Minister Boris Johnson is considering a reduction in the country’s isolation period from 7 days to 5. The move comes amid an ongoing strain on the UK’s health service, with members of the armed forces drafted in to support NHS operations and private healthcare companies tapped to provide essential treatments.

GBP could be benefiting from December retail sales data collected by the British Retail Consortium (BRC), although sales rose 0.6% below forecasts. Following an upward revision of November’s data, the BRC was quick to warn that consumer spending in 2022 is likely to be drastically impacted by rising inflation and a rising cost of living however.

The Bank of England (BoE) has predicted that consumer price inflation will hit around 6% in April as investors eye the central bank for an early interest rate hike.

US Dollar (USD) Tumbles Ahead of Fed Testimony and Inflation Data

The US Dollar (USD) has fallen against many of its competitors today as trading of the currency remains cautious ahead of Tuesday afternoon’s testimony from Federal Reserve Chairman Jerome Powell. This came despite US treasury yields rising to a two-year high above 1.8%.

Investors are expecting Powell to confirm that the central bank will take action to prevent high inflation from becoming ‘entrenched’, with a Q&A session following his speech likely to provide further hints of the Fed’s upcoming monetary policy. Bets on USD may also be subdued ahead of inflation data on Wednesday that is currently forecast to show a new record-high of 7%.

The US Dollar faces further challenges amid a new global record for daily Covid-19 cases recorded on Tuesday. The US recorded 1.35 million cases in a single day, which represents the highest daily tally for any country worldwide. The country’s soaring case numbers have placed further strain on the US healthcare system with some providers choosing to suspend elective procedures to cope with the case numbers.

GBP/USD Forecast: Will US Inflation Hit Record High?

Looking to the week ahead, a forecast widening of the UK’s trade deficit on Friday could drive Sterling down. GDP growth figures for November are forecast to rise slightly which could provide a welcome boost to the Pound, although investors may be cautious given that these figures are unlikely to fully reflect the impact of the Omicron variant.

USD investors will be keenly watching the Fed testimony on Tuesday afternoon for further hints of the central bank’s forward policy, with any hawkish indicators likely to provide a boost to the US Dollar. Wednesday’s forecast record-high inflation figures could also boost USD, with investors likely to view it as further evidence for an early rate rise by the Fed.

Gareth Monk

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