Pound US Dollar (GBP/USD) Exchange Rate Drops as UK Inflation Rises
The Pound US Dollar (GBP/USD) exchange rate is sliding this morning as food inflation continues to climb in the UK.
At the time of writing, GBP/USD is trading at roughly US$1.1460, a fall of around 0.5% from the morning’s opening rates.
Pound (GBP) Falters as Food Inflation Rises
The Pound is on a downtrend this morning as the cost-of-living crisis develops. .
Kantar Worldpanel published a report demonstrating that grocery prices were 14.7% higher than last year, the highest reading on record. They anticipate a further increase to 15% next month.
The Head of Retail and Consumer Insight at Kantar Worldpanel, Fraser McKevitt, explored the impact this is having on households. He stated:
‘Consumers face a £682 jump in their annual grocery bill if they continue to buy the same items and just over a quarter of all households [27%] now say they’re struggling financially, which is double the proportion we recorded last November.’
The report combines with a general readjustment in the market following last week’s sell-off of GBP, prompted by recession news. While yesterday saw Sterling rally, the increasingly bleak economic outlook has seen investors grow concerned, leaving GBP to struggle.
US Dollar (USD) Tepid ahead of US Mid-Term Elections
So far today, the US Dollar is lacking firm direction as investors anticipate the outcome of the mid-term elections.
While a result is unlikely to be clear for days, analysts are expecting the Republican party to take the House of Representatives at the very least. This is likely to cause political gridlock in US governing. As such, investors have been cautious around the ‘Greenback’ so far today.
Investors suspect that this may lead to the Federal Reserve slowing their tightening pace. Damien Boey, chief macro strategist at Barrenjoey explored this further:
‘If we get a gridlock outcome or Republican sweep, it won’t be so easy to get fiscal stimulus through next year, which means then that (Federal Reserve chair Jerome) Powell can afford to take the foot off the interest rate hike accelerator.’
Elsewhere, a return to risk-averse trade has served to cushion the safe-haven ‘Greenback’s’ losses. Due to the Chinese Yuan weakening on the back of China’s zero-covid confirmation, USD has found some support.
Pound US Dollar Exchange Rate Outlook: Mid-Terms in Focus
Looking ahead for GBP/USD, the results of the US mid-term elections are likely to be the key driver of movement.
While analysts are expecting political gridlock, a shock Democratic win could weaken USD. Conversely, a Republican sweep could mollify the ‘Greenback’.
For the UK, BoE policymaker Silvana Tenreyro is scheduled to speak later in the week. Any further dovish comments may serve to dent GBP further.