Pound US Dollar (GBP/USD) Exchange Rate Volatility Persists with US CPI Release

GBP/USD Exchange Rate Briefly Spikes on US Inflation

(Updated: 14:45, 14/03/23) The Pound US Dollar (GBP/USD) exchange rate continues to trade erratically this afternoon, following the publication of the US consumer price index.

The US Dollar initially softened in response to the CPI figures. January’s figures confirmed a slowdown in headline inflation.

However, this proved to be a kneejerk reaction. The US Dollar quickly rebounded from its worst levels as markets digested the month-on-month increase in core inflation.

Reduced bets the Federal Reserve will leave interest rates on hold this month, lead to a sharp upturn in US Treasury yields.

This is helping to underpin the US Dollar this afternoon and stemming losses from an improving market mood.

Original article continues below:

Pound US Dollar Exchange Rate Jittery amid Fallout of SVB Collapse

The Pound US Dollar (GBP/USD) exchange rate is wavering this morning as the collapse of Silicon Valley Bank (SVB) continues to grip markets.

At the time of writing the GBP/USD exchange rate is trading at around $1.2162. Virtually unchanged from this morning’s opening levels.

US Dollar (USD) Uncertainty Heightened by US Banking Fears

The US Dollar (USD) has been infused with significant volatility over the past few days. A trend which looks set to persist as the US banking crisis continues to dominate the news cycle.

USD exchange rates have nosedived following the collapse of SVB. The resulting crisis upturned Federal Reserve interest rate expectations, plunging the US Dollar to multi-week lows.

In the past week the odds of a 50bps rate hike have gone from 70% to 0%, with some USD investors now even pricing in the chances of the Fed leaving rates on hold next week.

The path forward for the US Dollar looks highly uncertainty so long as the US banking crisis remains in the spotlight.

Economists at Commerzbank suggest:

‘If nervousness remains high and if global contagion effects are feared, the US Dollar might benefit in its role as a safe haven.

‘However, if the crisis remains limited to the US, as it would seem for now, the US Dollar might suffer a double blow – as a result of the adverse US risk environment that reduces the USD premium as a safe haven currency and due to possibly reduced scope for the Fed to react appropriately to inflation risks.’

The uncertain outlook for the US Dollar is also heightened today by the impending release of the US consumer price index this afternoon.

Pound (GBP) Subdued Following Mixed UK Employment Report

The Pound (GBP) is struggling to find momentum this morning following the publication of the UK’s latest jobs report.

According to data published by the Office for National Statistics (ONS), the UK’s unemployment rate held at 3.7% in January. Beating forecasts its would rise to 3.8%.

On the other hand, wage growth came in below expectations. Average earning’s excluding bonusses fell from 6.7% to 6.5% versus forecasts for a more modest decline to 6.6%.

Slowing wage growth could ease pressure on the Bank of England (BoE) to tighten monetary policy. And casts further uncertainty over the bank’s interest rate decision next week.

Pound US Dollar Exchange Rate Forecast: US CPI to Stoke Volatility in USD?

The Pound US Dollar exchange rate could see notable movement this afternoon with the publication of the latest US CPI figures.

February’s CPI figures are expected to report both US headline and core inflation slowed. However, US inflation has regularly overshot expectations in recent months.

Could a stronger-than-expected inflation reading help to revive Fed rate hike expectations and underpin the US Dollar this afternoon?

Meanwhile, UK Chancellor Jeremy Hunt is set to unveil his first Spring Budget on Wednesday. GBP investors will be looking out for any measures which may help to boost UK economic growth.

Barring any major surprises, the Budget could help to lift Sterling.

Matthew Andrews

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