Pound US Dollar Exchange Rate Weakens on UK CPI Release
The Pound US Dollar (GBP/USD) exchange rate is trending lower this morning as another jump in UK inflation fails to extend support to Sterling.
At the time of writing the GBP/USD exchange rate is trading at around $1.3221, down roughly 0.3% from this morning’s opening levels.
Pound (GBP) Softens as Soaring Inflation is a Liability amid BoE’s Dovish Forward Guidance
The Pound (GBP) is on the defensive against the US Dollar (USD) this morning, as market react to the UK’s consumer price index.
According to data published by the Office for National Statistics (ONS), UK inflation rocketed from 5.5% to 6.2% in February. Smashing expectations for a more modest rise to 5.9% and striking a 30-year high in the process.
The latest jump in inflation comes less than a week after the Bank of England’s (BoE) latest policy meeting, in which it signalled its reluctance to continue raising interest rates.
This dovish forward guidance is taking its toll on the Pound US Dollar exchange rate again today, as the latest jump in inflation acts more of a liability for Sterling.
GBP investors fear the continued surge in inflation will suppress consumer spending this year as households are forced to tighten their belts.
Jack Leslie, senior economist at the Resolution Foundation, warns:
‘Another sharp rise in inflation last month offers a foretaste of the huge income squeeze coming this year, with inflation likely to hit at least 8 per cent this spring – which could be the highest it’s been in 40 years – along with a second spike this autumn.
‘This prolonged period of high inflation – which millions of people have simply never experienced before – is a complete disaster for living standards.’
US Dollar (USD) Buoyed by Gloomy Market Mood
At the same time, the US Dollar (USD) is trading with modest gains this morning as souring market sentiment bolsters the appeal of the safe-haven currency.
This drop in risk appetite comes amidst heightened geopolitical uncertainty, as well as firming expectations that the Federal Reserve will accelerate its current tightening cycle.
Fed policymakers struck a broadly hawkish tone in a series of speeches on Tuesday, with suggestions that ‘faster is better’ when it comes to tightening monetary policy.
Pound US Dollar Exchange Rate Forecast: Sunak’s Spring Budget in the Spotlight
Still to come today is the publication of Chancellor Rishi Sunak’s Spring Statement, which could offer support to the Pound US Dollar exchange rate later today.
GBP investors are hoping the Chancellor will help to cushion the UK’s cost-of-living crisis by announcing a series of measures aimed at supporting households.
Meanwhile the focus for USD investors this afternoon will be on a speech by Federal Reserve Chair Jerome Powell.
Should Powell reiterate his hawkish comments following the Fed’s March policy meeting, then the US Dollar could strengthen.