GBP/USD Exchange Rate Buoyed, Odds of an Aggressive Rate Hike Fall
(Updated: 08:25, 24/1/22) The Pound US Dollar exchange rate continued to trend higher overnight on Wednesday, with the pairing being buoyed following the publication of the minutes from the Federal Open Market Committee’s (FOMC) January policy meeting.
The minutes signalled the Fed is prepared to hike interest rates soon, but that it will be data dependant, something which appeared to cool expectations for a half-percentage increase to interest rates next month.
However the US Dollar looks well poised to recoup some of these losses through today’s session, as market risk appetite appears diminished after a senior US official suggested Russia’s claim it is withdrawing some of its troops from the border with Ukraine is ‘false’.
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Pound US Dollar Exchange Rate Buoyed Following UK CPI Release
The Pound US Dollar (GBP/USD) exchange rate is trending higher this morning, after the UK’s consumer price index printed at a 30-year high.
At the time of writing the GBP/USD exchange rate is trading at around $1.3569, down roughly 0.2% from this morning’s opening levels.
Pound (GBP) Buoyed in Wake of Inflation Release
The Pound (GBP) is trading with modest gains against the US Dollar (USD) so far this morning, as investors react the UK’s latest CPI release.
According to data published by the Office for National Statistics (ONS), domestic inflation accelerated to a new 30-year high of 5.5% in January. This beat forecasts inflation would hold at 5.4%.
January’s bump in inflation was attributed to rising clothing and footwear prices, while fewer January sales saw limited price drops.
Another above forecast inflation reading is likely to place even more pressure on the Bank of England (BoE) to maintain its current pace of aggressive interest rate hikes.
However, with yesterday’s jobs data confirming wage growth continues to trail well behind inflation, the upside potential in the Pound looks to be limited by concerns the UK’s cost-of-living crisis could hamper UK economic growth in 2022.
US Dollar (USD) Stumbles amid Soft Safe-Haven Demand
At the same time, the US Dollar is struggling to attract support this morning as a prevailing risk-on mood limits demand for the safe-haven currency.
This comes amid hopes of a de-escalation of tensions between Russia and Ukraine, after a Russian military spokesperson claimed some of its troops would be withdrawing from the border on Tuesday.
Some Western officials leaders expressed their scepticism over the withdrawal. US President Joe Biden suggests a Russian invasion of Ukraine is ‘still very much a possibility’.
In spite of these concerns the mood this morning remains broadly upbeat and is likely to limit the appeal of the US Dollar today.
Pound US Dollar Exchange Rate Forecast: Hawkish FOMC Minutes to Bolster the US Dollar?
Still to come today is the publication of the minutes from the Federal Open Market Committee’s (FOMC) January policy meeting.
USD investors will be going over the minutes with a fine-toothcomb as they seek to gauge how much appetite there is for a half-percentage increase in interest rates in March.
This could see the Pound US Dollar (GBP/USD) exchange rate weaken if some hawkish minutes help to reinforce expectations for an aggressive rate next month.
In the meantime, the release of the latest US retail sales figures may also reflect positively on the US Dollar, if sales growth rebounded as expected in January.
Meanwhile, a lull in UK data until the end of the week could see Brexit developments influence Sterling sentiment over the next couple of days.