Pound US Dollar (GBP/USD) Exchange Rate Plunges as UK CPI Surges to 40-Year High
The Pound US Dollar (GBP/USD) exchange rate plummeted this morning after trading in a narrow range overnight. The fall occurred as it was revealed the UK consumer price index jumped to a 40-year high last month.
At the time of writing, the GBP/USD exchange rate is trading at approximately $1.24.
Pound (GBP) Nosedives as UK Inflation Jumps
The Pound (GBP) is dropping against the US Dollar (USD) this morning as the UK’s latest inflation rate surged higher.
In April, UK inflation reached its highest level since 1982, jumping from 7% to 9%. This was largely attributed to rising energy bills driven by the new energy price cap and the Russia-Ukraine war.
This has spooked markets amid the ongoing UK cost-of-living crisis as the country’s economic recovery remains weak.
Grant Fitzner, Chief Economist at the Office for National Statistics (ONS), commented:
‘Inflation rose steeply in April, driven by the sharp climb in electricity and gas prices as the higher price cap came into effect.
‘Around three-quarters of the increase in the annual rate this month came from utility bills.
‘We have also published new modelled historical estimates today which show that CPI annual inflation was last higher 40 years ago.’
Moreover, the UK Chancellor of the Exchequer, Rishi Sunak, has said the government ‘cannot protect people completely from these global challenges but are providing significant support where we can, and stand ready to take further action.’
However, GBP investors remain cautious as these actions have not been outlined.
US Dollar (USD) Climbs on Risk-Off Sentiment
The US Dollar is rising against the majority of its peers this morning as a risk-off mood supports the safe haven ‘Greenback’.
In addition, USD exchange rates are being further supported by a hawkish speech from Federal Reserve Chair Jerome Powell on Tuesday evening.
Although Powell did not reveal anything new, he maintained his hawkish tone. The Fed Chair said that the US central bank will hike rates until inflation is under control, cementing bets for an aggressive tightening cycle over the coming months.
Pound US Dollar Exchange Rate Forecast: Will UK Manufacturing Expansion Support GBP?
Looking ahead, the Pound US Dollar exchange rate may be bolstered by the Confederation of British Industry’s (CBI) industrial trends orders.
In May, the CBI’s order book balance is expected to increase from 14 to 17. If market forecasts are met, it could boost demand for Sterling.
GBP exchange rates may also remain exposed to Brexit developments. At present, the UK is threatening to unilaterally amend the Northern Ireland protocol. Should the government implement changes without the EU’s consent, it may disrupt UK-EU trade.
As for the US Dollar, it may be supported by US initial jobless claims. In May, the number of US citizens applying for new unemployment benefits is expected to remain low at 200,000.