Pound US Dollar (GBP/USD) Exchange Rate Muted as UK Inflation Hits 40-Year-High

Pound US Dollar Exchange Rate Directionless as GBP Investors Digest Inflation Figures

The Pound US Dollar (GBP/USD) exchange rate is rangebound this morning following the UK’s latest inflation data.

At the time of writing the GBP/USD exchange rate is trading at around $1.1866, which is virtually unchanged from this morning’s opening rate.

Pound (GBP) Under Pressure amid Inflation Spike

The Pound (GBP) is struggling for support this morning as headline inflation reaches a fresh 40-year-high.

The headline rate was expected to climb from 10.1% to 10.7% in October. However, inflation came in hotter than expected and spiked to 11.1%.

This sharper-than-expected surge has been attributed to rising food and energy prices amid the cost-of-living crisis.

While the spike in inflation may incentivise the Bank of England (BoE) to pursue another aggressive interest rate hike in December, it also signals a potentially harder recession for the UK than GBP investors had previously feared.

According to David Bharier, Head of Research at British Chambers of Commerce, the bank’s interest rate rises are failing to tackle the core drivers of inflation that are hindering growth. Bharier says that with this in mind all eyes will be on the Autumn Statement tomorrow:

‘Ahead of tomorrow’s Autumn Statement, businesses will need to see a clear plan from the Chancellor to boost business investment and growth, as well as targeted measures that ease the specific causes of inflation.’

US Dollar (USD) Undermined by Easing Fed Rate Hike Bets

The US Dollar (USD) is rangebound this morning as USD investors continue to scale back expectations for future Federal Reserve interest rate hikes.

Yesterday’s weaker-than-expected PPI release sent the US Dollar spiralling as it fuelled expectations that US inflation has peaked.

However, the safe-haven currency has since recouped most of these gains amid heightened tensions in east Europe.

According to the Polish government a missile has killed two civilians near the Ukraine-Poland border. This followed a fresh wave of attacks across Ukraine from Russian forces on Tuesday. Talking about the attack Poland’s president Andrzej Duda said:

‘We do not have any conclusive evidence at the moment as to who launched this missile … it was most likely a Russian-made missile, but this is all still under investigation at the moment’.

However, Russia denies they launched an attack on the boarder, saying this is an attempt at escalation.

The uncertainty of who launched the missile, compounded by the threat of an escalation of the war in Ukraine is dampening the market mood this morning and limiting the US Dollar’s Fed related losses.

Pound US Dollar Exchange Rate Forecast: Autumn Statement to Drive GBP?

Looking ahead the Pound US Dollar exchange rate will likely be driven by the publication of the UK’s Autumn Statement tomorrow.

GBP investors will be focusing on Chancellor Jeremey Hunt’s austerity budget, keen to hear his plans concerning tax increases and borrowing cuts. The Pound could become volatile as investors react to the statement, especially if Hunt fails to mention support for poorer households in the UK.

Turning to the US jobs data could underpin movement tomorrow. Initial jobless claims are expected to remain elevated last week potentially weighing on the US Dollar.

Lauren Coulson

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