Pound US Dollar Exchange Rate Rallies as US Data Misses Forecasts
(Updated 17:00, 31/03/2022) The Pound US Dollar (GBP/USD) exchange rate continued to climb through this afternoon’s session, as US inflation data disappointed. Lending further upside is resilience from EU countries facing Russian intimidation, as they reject calls to pay for Russian gas in Roubles (RUB).
The US PCE price index – the Federal Reserve’s preferred measure of inflation – printed below expectations today, coming in at 6.4% rather than 6.5% as expected; although it was the steepest rise since February of 1982, the near miss pointed to persistent inflationary pressures.
Elsewhere, market sentiment was bolstered by Europe’s resilience in response to Russian demands that gas payments be paid in Roubles. Germany and France argued that such a request was an unacceptable breach of contract and amounted to blackmail.
Fortunately, the UK is less reliant upon Russia for its energy supplies so faces less pressure in this regard.
Original article continues below:
GBP/USD Exchange Rate Lifts as UK Economy Expands
The Pound US Dollar (GBP/USD) exchange rate has ticked up this morning following a brief downturn, as UK GDP impressed to the upside. Meanwhile, US Dollar (USD) investors await this afternoon’s PCE inflation data.
At the time of writing, GBP/USD is trading at $1.3134, virtually unchanged from today’s opening levels.
Pound (GBP) Strengthens as GDP Impresses
The Pound (GBP) has gained against several peers so far this morning as UK data printed above expectations.
The UK economy expanded by 1.3% in the fourth quarter of 2021, according to finalised data – following a downwardly revised 0.9% gain in the previous three months.
Service industries expanded more quickly than initially estimated and exports also increased more; the largest contributors to growth were human health and social work activities, driven by increased GP visits at the start of the quarter and a large increase in coronavirus testing and tracing activities.
Also buoying Sterling was a narrower current account deficit than experts predicted. The deficit narrowed sharply to £7.3bn or 1.2% of GDP in the fourth quarter of 2021, from an upwardly revised £28.9bn in the previous period.
The total trade gap narrowed to £10.3bn from £13.7bn, as service exports grew at a stronger pace than imports, namely in transport, intellectual property, and business services.
US Dollar (USD) Succumbs to Modest Weakness
The US Dollar (USD) has staged a modest retreat against the Pound today, despite climbing against several other peers: geopolitical tensions cap losses for the currency as Ukrainian President Volodymyr Zelenskyy expresses fears of nuclear attack.
In an address to the Australian parliament, Zelenskyy said:
‘No one can say any part of the world [is safe] from radioactive contamination which will come if nuclear weapons are used … A country which is using nuclear blackmail should receive sanctions which would show that such blackmailing is destructive for the blackmailer.’
In addition to wavering market sentiment, the ‘Greenback’ is enjoying upside from optimistic expectations regarding the Federal Reserve.
The Fed are adopting a more aggressive policy stance to combat high inflation, with markets pricing in a 50 bps rate hike move at the next two meetings; by comparison, the Bank of England (BoE) has softened its tone on the need for further rate hikes on account of the UK’s ‘volatile economic situation.’
Pound US Dollar Exchange Rate Forecast: Ukraine Developments to Influence Trading?
Looking ahead, diplomatic developments between Ukraine and Russia are likely to affect exchange rates, with progress potentially inspiring risk-on sentiment while pessimistic comments apply headwinds.
If Russia continues to attack Ukraine’s capital, Kyiv, market mood may take a further hit – a report from the UK Ministry of Defence suggests that heavy fighting will take place in the suburbs of the city in coming days, as Russian forces continue to hold positions to the east and west of the city.
Meanwhile, rising inflation in America, alongside fewer jobless citizens, could supply US Dollar support. The US PCE index is expected to reveal that annualised inflation rose to 6.5% in February, exerting pressure upon the Fed to tighten monetary policy.