GBP/USD Exchange Rate Slips Back Below $1.22 in Erratic Trade
(Updated: 14:45, 14/02/23) Movement in the Pound US Dollar (GBP/USD) exchange rate is erratic this afternoon, following a hotter-than-expected US inflation print.
The US Bureau of Labor Statistics reports inflation slowed from 6.5% to 6.4% in January. Missing consensus forecasts for a drop to 6.2%.
The initial response to the data prompted dramatic swings in the Pound US Dollar exchange rate. GBP/USD briefly spiked to $1.2234, before plunging to $1.2122 and erasing the pairing’s gains on the day.
New US inflation data has just dropped and the pound's reaction has been… in a word, "curious"
Markets Today has more: https://t.co/ngfFPys0Xw pic.twitter.com/WTtFq0MbZ0
— Bloomberg UK (@BloombergUK) February 14, 2023
The stronger-than-expected CPI reading indicates the Federal Reserve’s target to bring inflation back to its 2% target is facing some resistance. This is buoying the US Dollar this afternoon as it bolsters expectations the Fed may need to continue raising interest rates for longer.
Original article continues below:
Pound US Dollar Exchange Rate Firm as US Inflation in the Spotlight
The Pound US Dollar (GBP/USD) exchange rate is trading with modest gains so far this morning. Caution ahead of the latest US consumer price index is weighing on USD.
At the time of writing the GBP/USD exchange rate is trading at around $1.2192. Up roughly 0.3% from this morning’s opening levels.
US Dollar (USD) Subdued ahead of High-Impact US CPI Release
The US Dollar (USD) is on the back foot this morning as markets brace for a key US CPI release later this afternoon.
USD demand is weakening on the expectation US inflation will have continued to cool last month. Economists forecast headline CPI fell from 6.5% to 6.2% in January.
US Inflation Rate Seen Falling to 6.2%
The annual inflation rate in the US likely slowed to 6.2% in January 2023 from 6.5% in December 2022, marking a seventh consecutive month of falling and the lowest readin…
More here: https://t.co/LjdvxZ14rQ pic.twitter.com/NvjSRayx7F
— TRADING ECONOMICS (@tEconomics) February 14, 2023
Sam Stovall, chief investment strategist at CFRA Research, comments:
‘Investors are positioning themselves ahead of what they believe will be a favourable inflation report which could trigger an upward move in equity prices.’
A continued cooling of US inflation could dent the prospect of the Federal Reserve delivering several more interest rate hikes through 2023.
The US Dollar index (DXY) – which measures the US Dollar against a basket of its peers – is down 0.3% from the start of Tuesday’s European session.
Pound (GBP) Buoyed by Upbeat Wage Figures
The Pound (GBP) is supported this morning by the UK’s latest jobs report. With unemployment remaining unchanged the focus was on the accompanying wage growth figures.
According to data published by the Office for National Statistics, average earnings (excluding bonuses) outpaced expectations. Rising from 6.5% to 6.7% in December.
The bump in wage growth may place more pressure on the Bank of England (BoE) to continue raising interest rates. The BoE has previously voiced concern a wage-price spiral could lead to higher inflation becoming entrenched.
James Smith, Developed Markets Economist, writes:
‘UK wage growth has come in higher than expected in the latest jobs report, and this will be a concern for the Bank of England’s hawks.’
Pound US Dollar Exchange Rate Forecast: Dovish BoE to Weigh on Sterling?
Looking past this afternoon’s US CPI reading to Wednesday, the Pound US Dollar exchange rate may strengthen with the publication of the UK’s own CPI print.
Economists forecast while UK inflation continued to cool last month, it remains far hotter than other countries.
Another double-digit inflation reading from the UK could reinforce BoE rate hike bets and help to lift Sterling.
Wednesday will also see the publication of the latest US retail sales figures. January’s data is forecast to report a strong rebound in sales growth, following two consecutive declines at the end of 2022.
Will this rebound in sales growth boost the US Dollar? Or will a more positive outlook for the US economy cheer markets and limit demand for the safe-haven currency?