Pound US Dollar Exchange Rate Skyrockets as US Inflation Hits 39-Year High

(Updated 16:45 12/01/22)

The Pound US Dollar (GBP/USD) exchange rate reached a two-month high today following the release of US inflation data. Inflation in the US hit 7%, its highest since 1982, and caused USD to tumble.

At time of writing the GBP/USD exchange rate is at around $1.3698, which is up roughly 0.5% from this morning’s opening figures.

Pound US Dollar (GBP/USD) Exchange Rate Muted Ahead of US Inflation Figures

The Pound US Dollar exchange rate has remained subdued ahead of the release of US inflation figures on Wednesday. Record Covid-19 case levels are likely to also be placing pressure on the currency pair.

At time of writing the GBP/USD exchange rate is at around $1.3632, which is virtually unchanged from this morning’s opening figures.

US Dollar (USD) Stays Rangebound ahead of Inflation Data

The US Dollar (USD) has remained largely rangebound against its rivals today ahead of the release of significant inflation data on Wednesday.

The country’s inflation rate is forecast to hit a record-high 7% in December which could prompt USD to soar if investors see it as further reason for the US Federal Reserve to raise interest rates ahead of schedule.

The US Dollar (USD) may see its losses underpinned today however following testimony by Fed Chair Jerome Powell on Tuesday. Powell stated that the US economy was ready for higher interest rates and quantitative tightening, and that action needed to be taken in order to ensure that high inflation does not become ‘entrenched’.

Pressure on the currency may also be coming from skyrocketing Covid-19 infection numbers across the US. The country reported a record 1.35 million new infections on Monday, which represents the highest daily total for any country. President Joe Biden’s administration has come under repeated criticism for its approach to the pandemic with critics citing a focus on vaccinations over testing.

Pound (GBP) Subdued amid High Covid-19 Case Numbers and Soaring Energy Prices

The Pound (GBP) has trended sideways against its rivals today amid high Covid-19 case numbers and concerns regarding the UK’s strategy for combatting the Omicron variant.

Reports on Monday indicated that Prime Minister Boris Johnson was looking to reduce the country’s self-isolation period from 7 days to 5, but new data may undermine. According to a study conducted the UK Health Security Agency (UKHSA), one in seven people may remain infectious upon receiving a negative lateral flow test result.

Sterling may see some additional downward pressure as energy companies have warned that high energy bills may persist for up to two years. Chris O’Shea, chief executive of British Gas owner Centrica, told the BBC that high prices are in part a reaction to countries moving away from a reliance on coal and oil.

Uncertainty surrounding the PM Johnson’s future could cause weakness in the Pound today, as Johnson appears before the House of Commons to address accusations of further illegal gatherings at 10 Downing Street.

The ongoing negotiations between the EU and UK concerning the Northern Ireland Protocol could also limit the Pound’s upward movement.

GBP/USD Forecast: Will US Data Cause Fed to Raise Rates Early?

Looking to the week ahead for Sterling, Friday’s forecast widening of the country’s trade surplus could cause the Pound to fall. Friday also brings GDP growth figures for November which whilst forecast to rise may not affect the currency, as investors may await December’s figures to analyse the full impact of the Omicron variant.

Following Wednesday’s inflation data, the US Dollar could see a boost on Thursday as PPI figures are forecast to fall as supply chain issues gradually ease. Jobless claims are also expected to fall slightly on Thursday which could also boost USD should investors see it as a further indicator of a tight labour market.

Gareth Monk

Contact Gareth Monk


Related
Do Not Sell My Personal Information