Pound US Dollar Exchange Rate Trades Below Recent High
The Pound US Dollar (GBP/USD) exchange rate is trading level this morning following the release of a record-high UK CPI reading. Meanwhile, the US Dollar (USD) is subdued by risk-on trading sentiment and a lack of significant data.
At the time of writing, GBP/USD is trading at $1.2014, up slightly from today’s opening levels.
Pound (GBP) Stumbles on Inflation Release
The Pound (GBP) is trending lower against its peers today despite the release of a higher-than-expected inflation report, which ordinarily boosts currencies on hopes of more aggressive policy tightening from central banks.
June’s annualised consumer price index rose to 9.4% – a fresh 40-year high. This exceeded the 9.3% expected and was largely driven by increases in the price of food and petrol. Meanwhile, core inflation fell for a second month, though it remains at an elevated level.
Cost-of-living concerns may be fuelling downbeat Sterling sentiment alongside uncertainty regarding the Bank of England (BoE)’s next move. Governor Andrew Bailey said yesterday that a half-point rate hike was ‘on the table’ for August, but ‘not locked in’.
Helen Dickinson, chief executive of the British Retail Consortium, observes:
‘In the face of rising pressures in supply chains and operations, retailers are doing all they can to absorb as much of these costs as possible and look for efficiencies in their businesses.
Until inflation is brought to heel however, it will be a difficult road ahead for households and businesses in the UK.’
Amid forecasts of 12% inflation later in the year, it seems likely that the BoE will come under increasing pressure to review its mandate of ‘gradual policy tightening’ as numerous policymakers consider that the bank could go further.
US Dollar (USD) Faces Risk-On Headwinds
The safe-haven US Dollar is weakening against several of its rivals this morning as a risk-on market mood saps appeal. An equity rally in the Asian session helped boost trading sentiment, alongside positive news for Europe.
Reports suggest that Russian energy supplies to Europe via the Nord Stream pipeline will resume, following fears from European officials that Russia would cease to trade gas; earlier in the week, Germany’s budget commissioner said:
‘We don’t expect that [Nord Stream gas supplies] will come back… We are working on the assumption that it doesn’t return to operation and, in that case, certain additional measures need to be taken.’
Nevertheless, Russia has been seen to be restarting exports to Europe, putting governments’ minds at rest.
Capping upbeat sentiment, however, China has reported over 1000 Covid cases for the first time since 20 May. Markets may worry that fresh restrictions may be introduced to contain the spread, limiting China’s manufacturing capacity and negatively affecting trade.
If such fears escalate, overall market mood could turn sour, lending renewed support to the ‘Greenback’. On the other hand, continually reducing bets of a 100bps rate hike from the Federal Reserve are likely to cap USD gains.
Pound US Dollar Exchange Rate Forecast: External Factors to Drive Movement?
Given a lack of significant data for either the UK or US through the remainder of today’s session, the Pound US Dollar exchange rate is likely to trade on external factors such as risk sentiment and British politics.
The UK is in the middle of a leadership contest that will see the government appoint a new Prime Minister in the coming days. As the candidates are narrowed down, investors speculate over the effect of a new premier on the British economy.