Pound US Dollar (GBP/USD) Exchange Rate Slides amid Hotter-Than-Expected UK Data
The Pound US Dollar (GBP/USD) exchange rate dropped this morning, as the UK’s inflation data for September printed above market forecasts.
At the time of writing, the GBP/USD exchange rate has dropped to around US$1.1263, a 0.7% fall from the morning’s opening rates.
Pound (GBP) Slides as Gas and Electricity Prices Push Up Inflation Rates
The Pound (GBP) weakened across the board this morning, as today’s inflation figures for September came in hotter-than-expected.
Continually rising energy prices driving up YoY inflation to 10.1% from 9.9%, the rate has returned to the previous high seen in July this year.
With the cost-of-living crisis currently gripping the UK, the news has dented GBP by showing the continuing problems affecting the populace.
Darren Morgan, the ONS Director of Economic Statistics, expanded on this:
‘After last month’s small fall, headline inflation returned to its high seen earlier in the summer. The rise was driven by further increases across food, which saw its largest annual rise in over 40 years, while hotel prices also increased after falling this time last year.’
Furthermore, UK investors may be keeping an eye on the jump in core inflation rate. September’s print showed a similar pattern to headline inflation – an increase from 6.3% to 6.5%, beating forecasts.
This is the rate that would be the core concern the Bank of England (BoE), as it shows inflation in the UK minus volatile goods.
Despite being conscious that this increase would secure interest rate hikes from the BoE, investors have remained cautious so far.
US Dollar (USD) Rallies as Fed Rate Hike Bets Grow Safer
The US Dollar (USD) is seeing gains this morning with hawkish rhetoric from Federal Reserve policymakers buoying the ‘Greenback’.
With markets expecting a fourth successive 75bps rate hike in November, USD investors have been keeping a close watch on speeches from Fed policymakers.
On Tuesday, Minneapolis Fed President Neel Kashkari stated:
‘If we don’t see progress in underlying inflation or core inflation, I don’t see why I would advocate stopping at 4.5%, or 4.75% or something like that. We need to see actual progress in core inflation and services inflation and we are not seeing it yet.’
This comes alongside upbeat factory data, which has demonstrated strength in the US economy to investors.
As the safe-haven currency shores-up against the bleak global economic outlook, investors have turned to the ‘Greenback’.
Pound US Dollar (GBP/USD) Exchange Rate Forecast: UK Politics in Focus
Looking ahead, the core catalyst of movement on the GBP/USD exchange rate may be political instability in the UK.
With Liz Truss’ premiership continuing to seem unstable in the wake of growing unrest within her own party, any further developments could inject fresh volatility into the Pound, such as potential fallouts from today’s PMQs.
Another pressure point would be Friday’s Retail Sales data for September. Should another below-expectations result occur, GBP could be dented.
For the US Dollar, scheduled speeches from Fed policymakers could continue to buoy the ‘Greenback’ should they maintain a broadly hawkish tone.