Pound US Dollar (GBP/USD) Exchange Rate Jumps on Fed Monetary Policy Speculation

Pound US Dollar Climbs Further as Markets Digest Recent Data

(Updated 16:30, 14/09/2022) The Pound US Dollar (GBP/USD) exchange rate has reached a daily peak this afternoon, as relative GBP strength persists while the ‘Greenback’ remains under pressure from central bank uncertainty.

While markets are convinced the Bank of England (BoE) will hike interest rates next week by either 50 or 75bps, some analysts are now questioning whether today’s PPI data could alter the Fed’s hawkish stance.

Many are of the opinion that the monthly increase in core prices provides little argument for the Fed to soften their approach. Furthermore, if the core PPI carries on increasing at the same average rate as in the last five months, annual inflation will remain above target.

Nevertheless, USD bulls trade defensively through the early North American session following the fall from last month’s reading.

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GBP/USD Exchange Rate Trends Higher as Oil Prices Tumble

(Updated 13:45, 14/09/2022) The Pound US Dollar (GBP/USD) exchange rate is continuing to climb this afternoon, as Sterling exchange rates are buoyed by forecasts of lower oil prices. The cost of motor fuel was one of the key drivers of higher inflation in recent months: the prospect of cheaper oil suggests inflation may continue to ease.

The International Energy Agency (IEA) said in its monthly oil report today that global oil demand will likely drop between October and December as Chinese Covid measures continue to limit the country’s oil consumption. The news will come as a relief to families who rely upon oil for winter fuel.

The IEA adds that oil demand will subsequently rebound in 2023, noting:

‘Global oil demand remains under pressure from the faltering Chinese economy and an ongoing slowdown in OECD economies. Non-OECD countries will cover three quarters of 2023’s gains if China reopens as expected.’

Also buoying GBP is more optimism from cost-of-living analysts. Jack Leslie, a senior economist at the Resolution Foundation, commented today that:

‘High inflation continues to drive Britain’s cost-of-living crisis, but the outlook has brightened considerably over the past week. The energy price guarantee should prevent a second winter surge in prices, while factory gate inflation is starting to ease.’

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Pound US Dollar Exchange Rate Rises, UK Inflation Remains Near 40-Year High

The Pound US Dollar (GBP/USD) exchange rate is trending gradually higher this morning following a knee-jerk downturn as UK inflation printed below expectations.

Analysts assessing the data, however, say consumer prices remain close to a 40-year high, maintaining pressure upon the Bank of England (BoE) to tighten interest rates.

At the time of writing, the Pound US Dollar is trading at $1.1535, up 0.3% from today’s opening levels.

Pound (GBP) Climbs as BoE Likely to Hike Interest Rates

The Pound (GBP) is firming this morning against the majority of its peers despite the UK’s latest inflation reading missing expectations.

Consumer price inflation in the UK eased to 9.9% in August from 10.1% in July, missing forecasts of a rise to 10.2%.

Experts were quick to note, however, that price pressures remain close to a 40-year high. According to the Office for National Statistics (ONS):

‘Food and non-alcoholic beverages made the largest upward contribution to the monthly rates in August 2022, while falling prices for motor fuels resulted in a large offsetting downward contribution.’

Analysts also observe that inflation continues to exceed the UK’s official 2% inflation target quite substantially and is more than three times higher than the 3.2% recorded in August 2021.

Furthermore, the Bank of England is still expected to raise interest rates by 0.5 percentage points at its meeting next week, as rising prices continue to pose a problem for UK businesses and households.

Sharon Graham, the general secretary of the union Unite, says:

If consensus remains that the BoE will maintain a hawkish stance ahead, Sterling is likely to continue enjoying tailwinds through today’s session.

US Dollar (USD) Resumes Downtrend Following Yesterday’s Inflation-Inspired Uptick

The US Dollar (USD) is weakening against its peers so far today, having relinquished some of yesterday’s inflation-inspired gains. The ‘Greenback’ enjoyed a significant boost on Tuesday as core inflation increased in the year to August by more than expected.

Tailwinds have not been fully exhausted, as USD has not yet returned to its pre-release levels. Higher-than-expected price pressures in the world’s largest economy attract safe-haven support to the US Dollar on widespread recession fears.

Today’s core PPI release could soften the blow to global markets, if it reduced in August as expected. July’s 7.6% reading marked the lowest print since the previous October, attributable to a 1.8% decline in prices for final-demand goods.

In the meantime, demand for the ‘Greenback’ is capped by improved risk appetite and the continuation of an earlier downward correction. The US dollar index was 0.2% down earlier this morning, having hit a two-decade peak of 110.79 last week.

Pound US Dollar Forecast: US Data to Sway the Exchange Rate?

A lack of further UK data through today’s session leaves the Pound US Dollar exchange rate to trade on US releases this afternoon. America’s producer price inflation reading is likely to temper markets’ fears of out-of-control inflation in the world’s largest economy, if it fell in August as expected.

This could attract further risk-on support to the Pound. On the other hand, if markets turn bearish on recession fears or political dynamics, the Pound US Dollar is likely to tumble: the ‘Greenback’ is favoured by investors in times of economic uncertainty or volatility.

Olivia Evershed

Contact Olivia Evershed


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