(Updated 16:45 15/02/22)
The Pound US Dollar (GBP/USD) exchange rate has fallen close to its opening figures. The US Dollar (USD) saw a brief spike following hotter than expected PPI data, although a risk-off trading sentiment likely limited gains for the currency.
At time of writing the GBP/USD exchange rate is at around $1.3536, virtually unchanged from this morning’s opening figures.
Pound US Dollar (GBP/USD) Exchange Rate Climbs as Russia Pulls Back Troops
The Pound US Dollar (GBP/USD) exchange rate has edged higher today as Russian troop withdrawal sees a risk-on mood return to the markets.
At time of writing the GBP/USD exchange rate is at around $1.3555, which is up roughly 0.2% from this morning’s opening figures.
US Dollar (USD) Drops as Russia Withdraws Troops from Ukraine Border
The US Dollar (USD) has largely fallen against its rivals today amid a downturn in US treasury bond yields. The ongoing tension at the Ukraine-Russia border is also likely adding to USD’s downward momentum.
Reports that Russia is withdrawing some of its forces could contribute to a risk-on market mood however, further drawing investors away from the safe-haven ‘Greenback’.
Losses for the US Dollar may have been limited however by ongoing expectations of an aggressive rate hike from the US Federal Reserve at their March meeting. The central bank seems divided on just how aggressive the hike will need to be however.
Speaking to CNBC, St. Louis Federal Reserve President James Bullard gave his justification for a full percentage point hike by 1 July:
‘It was really October, November, December, January that called into question any idea that this inflation was naturally going to moderate in any reasonable time frame without the Fed taking action.’
Further hawkish comments from Fed officials are likely to continue to support USD throughout the week.
Pound (GBP) Muted as Wages Fail to Match Pace of Inflation
The Pound has remained subdued against many of its rivals today. Gains for Sterling have also likely been limited after disappointing employment and wage growth figures.
The number of people in employment fell below forecasts by -38K in the last three months of 2021 whilst job vacancies in January hit a new record high of 1.2 million.
The figures collated by the Office for National Statistics (ONS) also found that, after taking inflation into account, real wage growth fell 0.1% year-on-year and wages in December fell by 0.8%.
Estimates for pay growth in January were more optimistic however. The ONS predicted that year-on-year median monthly pay would increase by 6.3% which could prompt faster rate rises from the Bank of England (BoE).
Danni Hewson, AJ Bell financial analyst, had the following analysis of the ONS data:
‘Workers have been feeling the squeeze with the price of just about everything going up and wage growth over the three months to the end of the year is simply not keeping pace. Early indications for January suggest that’s changing as businesses battle to not only recruit workers but to keep their existing ones.’
The Pound could see some further headwinds however as reports indicate Prime Minister Boris Johnson is expected to deny any wrongdoing surrounding parties at 10 Downing Street.
GBP/USD Exchange Rate Forecast: Will Central Banks be Forced To Hike Rates Higher?
Looking to the week ahead for the UK, January’s inflation figures on Wednesday are expected to remain high which could boost expectations of a rate hike from the BoE and push GBP up.
Friday’s retail sales figures for January could also buoy Sterling further should they show as strong a recovery as forecast.
For the US, January’s PPI figures on Tuesdays are forecast to edge higher amid 40-year high inflation. Investors will be watching these figures as well as Wednesday’s FOMC minutes for indicators of the Fed’s forward policy. Hawkish indicators are likely to push USD higher.
Wednesday’s expected recovery to January’s retail figures could also boost the US Dollar.