GBP/USD Exchange Rate Plummets Following US Inflation Release
(Updated: 14:15, 13/9/22) The Pound US Dollar exchange rate nosedived this afternoon, with the publication of the latest US inflation release.
August’s CPI figures reported US headline inflation slowed from 8.5% to 8.3%. This was ahead of forecasts of a fall to 0.1%. The accompanying core figures also reported a stronger-than-expected uptick in underlying inflation.
US Core CPI accelerated again to 6.3% YoY, or .6% MoM. 👇
Rate hikes won't stop at 4%, in my opinion. pic.twitter.com/LCxUI7KGwD
— Fabian Wintersberger (@f_wintersberger) September 13, 2022
The hotter-than-expected inflation release sent the US Dollar skyrocketing on the expectation the Federal Reserve will continue to raise interest rates aggressively.
According to CME’s FedWatch tool, some more bullish investors are even starting to price in a 100bps rate hike from the US central bank at its September policy, although the consensus is still for a 75bps increase.
Meanwhile, the Pound’s gains from earlier this morning have completely evaporated amid a souring market mood.
Original article continues below:
Pound US Dollar Exchange Rate Fluctuates on UK Jobs Data
The Pound US Dollar (GBP/USD) exchange rate is trading with modest gains this morning, in response to the UK’s latest jobs report.
At the time of writing the GBP/USD exchange rate is trading at around $1.1714. Up around 0.2% from this morning’s opening levels.
Pound (GBP) Wavers Following Mixed Employment Figures
The Pound (GBP) got off to a strong start this morning. Rallying against the US Dollar (USD) and the majority of its other peers following the release of the UK’s latest jobs report.
According to the Office for National Statistics (ONS), UK unemployment unexpectedly fell in July. The drop from 3.8% to 3.6% saw the UK’s jobless rate fall to its lowest levels since 1974.
UK unemployment at lowest rate for 48 years, figures show https://t.co/IN8VFq56Dq
— BBC News (UK) (@BBCNews) September 13, 2022
The accompanying earnings figures also revealed a larger-than-expected uptick in wage growth in the three months to July.
Sterling initially firmed on suggestions that a stronger-than-expected jobs report may place more pressure on the Bank of England (BoE) to accelerate the pace of its interest rates.
However the Pound subsequently shed a large portion of these gains. As the report also highlighted the continued fall in real pay, which is exacerbating the cost of living crisis.
Jack Kennedy, UK economist at Indeed, commented:
‘While many people’s thoughts may be elsewhere at the moment, the cost-of-living crisis continues to be reflected in a squeeze on real terms pay. Despite historically strong nominal regular pay growth, real wages were down -2.8% on the year – one of the largest falls on record.’
US Dollar (USD) Muted in Risk-On Trade
The US Dollar (USD) remains on the back foot this morning. A prevailing risk-on mood continuing to pressure demand for the safe-haven currency.
Market sentiment saw a dramatic improvement at the start of this week. Ukraine’s successful counteroffensive against Russian forces has bolstered hopes for a swifter end to the conflict.
The downturn in the US Dollar has also been attributed to falling US Treasury yields ahead of the latest US inflation figures.
Pound US Dollar Exchange Rate Forecast: Slowing US Inflation to Weigh Heavily on USD?
The Pound US Dollar exchange rate may extend its gains this afternoon with the publication of the US consumer price index.
August’s CPI figures are expected to report US inflationary pressures continued to ease. Inflation is forecast to have slowed from 8.5% to 8.1%.
Another pullback in inflation could take a heavy toll on the US Dollar as it may lead USD investors to rein in bets for future interest rate hikes from the Federal Reserve.
The publication of the UK’s own CPI figures will likely act as the main catalyst of movement for the Pound on Wednesday.
In contrast to the US release, UK inflation is expected to have continued to accelerate last month.
This could be a double-edged sword for the Pound. While another uptick in inflation will place more pressure on the BoE to raise interest rates, it may also revive concerns over the UK’s cost of living crisis.