Pound US Dollar (GBP/USD) Exchange Rate Fluctuates on Political Instability
The Pound US Dollar (GBP/USD) exchange rate is trading erratically today on hopes of further U-turns in the UK government’s controversial mini-budget.
At time of writing, the GBP/USD exchange rate is around $1.1271, down 0.25% from this morning’s opening levels.
Pound (GBP) Under Pressure amid Political Spotlight
The Pound (GBP) is fluctuating wildly this morning as Chancellor Kwasi Kwarteng cut his Washington trip short. Pressure is mounting back home as reports circulated of another U-turn in the disastrous mini-budget that unleashed turmoil within the markets.
Despite hopes of another fiscal backpedal, persistent political instability is weighing on the Pound. Support has collapsed for Prime Minister Liz Truss’ government, a little over a month after entering office. The mini-budget announcement from Kwarteng sent shockwaves through the markets and plunged Sterling to historic lows. The Bank of England (BoE) intervened with emergency bond-buying schemes but that is due to end today.
Ongoing discussions are taking place in London on how to balance the books after a calamitous fiscal plan just three weeks ago. Another U-turn could mean a substantial hit to Truss and Kwarteng’s credibility but might be enough to save market turmoil. Either way, ongoing political instability could deter GBP investors.
US Dollar (USD) Strengthened on Heightened Rate Hike Bets
Meanwhile, the US Dollar continued its rally on the back of hotter-than-expected inflation data yesterday. Headline CPI fell less than expected to 8.2%, the lowest in seven months. However, core inflation accelerated to 6.6%, the highest since 1982. Excluding volatile items such as food and energy, prices rose 0.6% for the month of September.
The ‘Greenback’ gathered further strength as expectations of further interest rate hikes buoyed investors’ spirits. The markets are now pricing in a 75bps rate hike in November, stopping just short of 100 basis point bets. With today’s release of retail sales and consumer sentiment data, further positive economic news could bolster Federal Reserve rate hike bets.
Pound US Dollar Exchange Rate Forecast: US Retail Sales to Boost US Dollar?
Looking ahead, the Pound US Dollar exchange rate could fluctuate further on US data releases. Retail sales and consumer market sentiment data will be released later today. With the second month of falling inflation, driven by dropping gasoline prices, consumer sentiment could improve. A second month of strong retail data could also boost the ‘Greenback’.
Meanwhile, the market will be keeping a close eye on developments from Downing Street. Announcements of further fiscal plan reversals could rally the Pound.