(Updated 16:45 14/04/22)
The Pound US Dollar (GBP/USD) exchange rate fell over the course of today’s session. Higher US bond yields contributed to sustained strength for USD. Additionally, above-forecast US consumer sentiment likely helped to bolster the US Dollar as well as hawkish Fed speak.
The Pound (GBP) meanwhile likely dropped in tandem with the Euro (EUR), which suffered after a dovish interest rate meeting from the European Central Bank (ECB).
At time of writing the GBP/USD exchange rate is at around $1.3048, down roughly -0.5% from this morning’s opening figures.
Pound US Dollar (GBP/USD) Exchange Rate Rangebound amid USD Pullback
The Pound US Dollar (GBP/USD) exchange rate is trading within a narrow range today. Higher than forecast inflation figures and expectations of a Bank of England (BoE) rate hike are helping to prop up the Pound (GBP). A gradual pullback in the US Dollar (USD) is also keeping the Pound US Dollar currency pair suppressed amid a downturn in bond yields.
At time of writing the GBP/USD exchange rate is at around $1.3136, virtually unchanged from this morning’s opening figures.
Pound (GBP) Gains amid Partygate Fines for Johnson and Sunak
The Pound (GBP) is edging higher against its competitors today. Sterling has continued to remain elevated after higher than forecast inflation data on Wednesday. This has in turn increased expectations of an interest rate hike from the BoE, which is also bolstering GBP today.
The UK’s rate of inflation soared past forecasts on Wednesday to hit a near three-decade high. The rate printed at 7%, above forecasts of 6.7%, with analysts warning that households were set to see the sharpest rise to cost of living since the early 1980’s. Soaring energy and fuel prices amid the war in Ukraine were highlighted as primary drivers of the rise.
Alpesh Paleja, lead economist at CBI business lobby group, said:
‘The latest rise in inflation will not be the last. The result will be even higher costs for businesses, and a deep squeeze in the cost of living for households.’
The figures have increased pressure on the Bank of England to act in order to further curb soaring inflation. The central bank is largely expected to raise interest rates at their next meeting.
Sterling could see some headwinds from the UK’s domestic political sphere today. On Wednesday, Prime Minister Boris Johnson and Chancellor Rishi Sunak both received fines over their involvement in the ‘partygate’ scandal. With further investigations to come, fresh fines could undermine confidence in the Pound.
US Dollar (USD) Subdued as Bond Yields Retreat
The US Dollar (USD) is making little headway against its rivals today. The safe-haven ‘Greenback’ is struggling amid a dip to US Treasury bond yields and a risk-on trading mood in the equities market.
Major losses for the US Dollar may be limited today by the Federal Reserve’s continued hawkish tact however. Multiple Fed officials have signalled that a series of aggressive interest rate hikes may be necessary in order to tame record-high inflation.
Speaking on Wednesday, policymaker Christopher Waller stated that he would support a 0.5% rate hike in May. Waller also said he would back ‘possibly more’ rate hikes in June. Also on Wednesday, Fed board member Thomas Barkin stated that the current rate of inflation could require policy tightening ‘more than has been our recent pattern’.
GBP/USD Exchange Rate Forecast: Will Fed Maintain Current Hawkish Course?
With no further significant data for the Pound this week, the currency’s movement are likely set to be dictated global risk appetite. Further developments in UK politics could also prompt shifts in GBP’s fortunes.
For the US Dollar, an expected rise to March’s retail sales figures could help bolster the currency later today. On the other hand, a forecast downturn to April’s consumer sentiment could harm any upward momentum for USD.
Additionally, speeches by the Fed’s Loretta Mester and Patrick Harker could see USD climb higher should they reaffirm the central bank’s hawkish stance.