Pound US Dollar (GBP/USD) Exchange Rate Soars as US Inflation Falls
(Updated: 14:01 10/11/22) The Pound US Dollar (GBP/USD) exchange rate is soaring this afternoon, as US inflation data shows greater falls than forecast.
YoY inflation came in at 7.7%, well below the forecast 8% rate. This data was already expected to fall, but the drop took investors by surprise and instigated a shift to risk-on trade.
With core inflation also falling, the ‘Greenback’ weakened as the expectation of aggressive rate hikes from the Federal Reserve waned.
The news pushed GBP/USD to around US$1.1602 at the time of writing, a dramatic leap of roughly 2.1% from the morning’s opening rates.
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Pound US Dollar (GBP/USD) Exchange Rate Narrows amid US Midterm Elections
The Pound US Dollar (GBP/USD) exchange rate is rangebound this morning, as results from Tuesday’s US midterm elections signal political gridlock.
At the time of writing, GBP/USD is trading at around US$1.1380, displaying little movement from the morning’s opening rates.
US Dollar (USD) Mixed as Midterm Results Signal Gridlock
The US Dollar (USD) is enduring mixed trade this morning, as the midterm election results signal political stalemate.
With the Republican party approaching a slim majority in the house of representatives, the Democrats spending plans may be limited. As such, investors are hesitant to support the ‘Greenback’, as it seems likely inflation could be curtailed by the gridlock. With inflation potentially falling, the need for aggressive Federal Reserve tightening diminishes, leading to a less attractive investment.
With the expected ‘Red Wave’ failing to materialise, the Democrats have thus far exceeded expectations.
However, treasury yields have begun to fall somewhat, placing a cap on the gains USD is making during today’s session.
This comes as investors consider the impact of the political gridlock. A Republican majority is likely to grind most Democrat initiatives to a halt, meaning key fiscal decisions could face delays. As such, the US economy may suffer due to the political battling ahead.
Elsewhere, investors are anticipating the release of US inflation data. The release has prompted a risk-averse market mood, strengthening the safe-haven USD.
Pound (GBP) Strengthens as Sunak Tackles Brexit Headache
Despite narrowing against the US Dollar, the Pound (GBP) is rallying elsewhere this morning. This comes as Prime Minister Rishi Sunak heads to Ireland to discuss the controversial Northern Ireland Protocol.
The Protocol has proven to be a thorn in the side of past Prime Ministers, and is creating a blockade for EU-UK trade. Sunak is the first UK PM to attend the British-Irish Council since 2007, prompting reassurance for investors and GBP gains.
On meeting the Taoiseach, Sunak is expected to explore options for restoring the power-share in Northern Ireland, and make progress with the Protocol.
As such, investors are drawn to Sterling with the expectation of improved trade between the UK and European Union.
However, downbeat economic news in the UK is serving to cap Sterling’s gains. With more businesses coming forward to talk about a bleak economic future, the UK’s recession remains on investor’s minds.
Pound US Dollar Exchange Rate Forecast: UK GDP to Weaken Sterling?
The afternoon brings the latest US inflation data. With core inflation expected to fall somewhat, the Fed may be able to ease their rate hike policy. This could lead to a weakened ‘Greenback’.
Friday morning brings the release of the UK’s Q3 and September GDP data. With contractions expected across the board, this may weaken GBP/USD by illustrating the UK’s recession woes.
For USD, several Fed officials are schedules to speak over the next two days. Coming on the back of the US’ inflation data, should they strike a hawkish tone the ‘Greenback’ may strengthen.
Elsewhere, as the US midterm results continue to be ratified, any shock gains for Democrats may prompt a bond rally and a stronger USD. However, should the Republicans take both the house and senate, USD may weaken due to the unfolding political stalemate.