Pound US Dollar (GBP/USD) Exchange Rate Crashes as US Retail Shows Strong Recovery
(Article updated 14:45, 15/02/2023) The Pound US Dollar (GBP/USD) exchange rate is plunging this afternoon, following the publication of the latest US retail sales data.
The data, which was forecast to print at a recovery of 1.8%, shot up to 3% for January. As such, USD investors cheered and flocked to the ‘Greenback’ amid signs that US consumer spending was improving nicely.
Furthermore, increased Federal Reserve interest rate hike bets may be playing a part in boosting the ‘Greenback’. With supply constrained categories seeing elevated consumer interest, it may have a knock on effect of adding to inflationary pressures. As such, there may be even more of a need for the Fed to continue hiking rates.
At the time of writing, GBP/USD is trading around US$1.2006, a steep decline of almost 1.4% from the morning’s opening rates.
Original article continues below:
Pound US Dollar (GBP/USD) Exchange Rate Drops as UK CPI Cools
The Pound US Dollar (GBP/USD) exchange rate is falling this morning, following the publication of January’s UK CPI data.
At the time of writing, GBP/USD is trading around US$1.2081, a sharp drop of almost 0.8% from the morning’s opening rates.
Pound (GBP) Weakens as Inflation Cools Further Than Expected
The Pound (GBP) is weakening this morning, following the publication of the latest CPI data. The release showed that headline inflation cooled to 10.1%, fare below forecasts of an ease to 10.3%.
Core inflation also fell further than anticipated, dropping down to 5.8%. Economists and analysts are hopeful that this shows inflation has finally turned a corner, providing a boon for UK households.
However, GBP investors are mindful that this will likely mean less aggressive tightening from the Bank of England (BoE). Due to the drop in core inflation, there is room for the BoE to take a more dovish approach.
Jake Finney, an Economist at PwC, stated:
‘The Bank of England will be pleased to see that services inflation is starting to subside. They will also be reassured by the latest data indicating that private sector wage growth is easing.’
Following recent labour market data, the BoE has reasserted that future monetary policy is likely to be data dependent. As such, while the bank continues to deliberate over future hikes or cuts, GBP may be dented.
US Dollar (USD) Rallies as Rate Hike Bets Continue
The US Dollar (USD) is rallying this morning, as USD investors to continue to anticipate further tightening from the Federal Reserve.
With US inflation proving stickier than expected after yesterday’s print, investors are hopeful that the Fed can remain aggressive. Currently, investors are pointing to an 80% chance that the Fed will hike rates by another 25bps in March.
Lending further support to the ‘Greenback’ is a cautious market mood. Being a safe-haven currency, the US Dollar is benefitting from the current tepid trade.
Elsewhere, investors are anticipating this afternoon’s retail sales data. With a return to growth expected in January, USD could rally further.
Pound US Dollar (GBP/USD) Exchange Rate Forecast: US PPI to Boost USD?
Looking ahead for the US Dollar, January’s PPI data is due to print tomorrow. An increase is forecast of 0.4%, above December’s fall of -0.5%.
If this prints as forecast, USD may strengthen as investors bet on further interest rate hikes from the Federal Reserve. On top of inflation cooling less than expected, the pressure is on the Fed to drive it down and prevent it becoming embedded.
Furthermore, a series of speeches from Fed officials are scheduled throughout Thursday. If they take a hawkish stance towards inflation, the ‘Greenback’ could strengthen further.
For the Pound, the core catalyst of movement is likely to be January’s retail sales data, due to print on Friday.