(Updated 16:48 19/01/22)
The Pound US Dollar (GBP/USD) has climbed today following 30-year high UK inflation and easing of the UK’s ‘Plan B’ Covid-19 restrictions.
At time of writing the GBP/USD exchange rate is at around $1.3624, which is up around 0.2% from this morning’s opening figures.
Pound US Dollar (GBP/USD) Exchange Rate Rises as UK Inflation hits 30-Year High
The Pound US Dollar (GBP/USD) exchange rate has ticked upward as the UK’s rate of inflation hit a 30-year high on Wednesday.
At time of writing the GBP/USD exchange rate is at around $1.3625, which is up around 0.2% from this morning’s opening figures.
Pound (GBP) Climbs Against Safe-Haven Rivals as Inflation Soars
The Pound (GBP) has dipped against some riskier rivals today as UK inflation struck a a 30-year high. A risk-on market attitude following the release of the inflation data may have helped the currency tick upward against the Euro (EUR) and US Dollar (USD) however.
UK inflation rose to 5.4% in December above forecasts of 5.2%, and up from November’s rate of 5.1%.
The increase was thought to be driven by a wide range of goods, with the biggest push coming from food and drink restaurants and hotels. The Omicron variant also seemed to have much less of an impact on the rate of inflation than expected.
The figures are likely to increase expectations for multiple interest rate hikes by the Bank of England (BoE) this year, with GBP investors having already largely priced in a hike following the bank’s 3 February meeting.
The news comes as Prime Ministers Boris Johnson faces further calls for his resignation following multiple allegations of illegal gatherings at 10 Downing Street.
Reports on Tuesday indicated that additional Conservative MPS were preparing to submit letters of no confidence in the PM in order to trigger a leadership contest, and ongoing uncertainty surrounding Johnson’s fate could push the Pound down.
US Dollar (USD) Dips as Investors Await Fed January Meeting
The US Dollar (USD) has fallen against its competitors today, as a risk-on market mood and slow trading ahead of the Federal Reserve’s next meeting place pressure on USD. Losses for the currency may be capped by rising bond yields however.
Analysts are anticipating a larger than expected rate rise by the Fed in March 2022, with markets now pricing in at least three hikes over the course of the year.
Fed Chair Jerome Powell has previously highlighted the need to act aggressively to combat high inflation, and the central bank has already signalled that they will begin their process of quantitative tightening earlier than first planned.
Further indicators of future monetary policy from the Fed could push USD higher, although many investors will likely hold off until after the next meeting on 28 January.
The US Dollar could be pushed upward today following news that the government has made a number of Covid-19 testing and protective measures free to all citizens. 400 million non-surgical N95 masks are to be made available to the public for free starting from next week, as well the launch on Wednesday of the new CovidTests website allowing households to order four tests for free.
GBP/USD Forecast: Will Omicron-led UK Data Harm Growth Forecasts?
Looking ahead to the rest of the week, an expected fall in the UK’s December retail sales figures could push Sterling lower and dampen expectations of fourth quarter growth. This could be further compounded by a forecast dip in the consumer confidence index for January.
Ongoing political uncertainty in the UK may also continue to cause volatility in Sterling as calls for Boris Johnson’s resignation continue to mount.
For the US markets, a slight forecast fall in initial jobless claims could push USD up should investors see it as further reason for the Fed to raise interest rates sooner and more aggressively.