Pound US Dollar (GBP/USD) Exchange Rate Extends Upside following US Data
(Updated 17:00, 13/4/23) The Pound US Dollar (GBP/USD) exchange rate continued to climb today after American data dented the US Dollar (USD).
The US producer price index – an indicator of wholesale inflation – unexpectedly declined last month, printing at -0.5% rather than the expected 0%. This, paired with a larger-than-expected uptick in jobless claims, saw markets continue to rein in their expectations for more Federal Reserve interest rate rises.
Meanwhile, the Pound’s (GBP) upside may have been capped by comments from Bank of England (BoE) Chief Economist Huw Pill. Pill suggested that wage growth may be easing, which would take pressure off the BoE to continue hiking rates.
At the time of writing, GBP/USD is trading at $1.2528, having briefly hit a ten-month high earlier in the session.
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Pound US Dollar (GBP/USD) Exchange Rate Firms as Fed Bets Recede
The Pound US Dollar (GBP/USD) exchange rate is strengthening today, despite disappointing UK GDP data, as investors shun the US Dollar (USD) amid a pullback in Federal Reserve interest rate rise bets.
At the time of writing GBP/USD is trading at $1.2515, having retreated from an earlier high of $1.2520.
US Dollar (USD) Slips as Markets Pare Fed Bets
The US Dollar remains on the back foot today, following yesterday’s selloff, as markets continue to scale back bets on further policy tightening from the Federal Reserve.
The latest American consumer price index revealed a sharper-than-expected slowdown in inflation last month. Headline inflation eased from 6% to 5%, a near two-year low. This is the latest indication that the Fed is winning its battle against inflation and may encourage the US central bank to stop raising interest rates.
The Federal Open Market Committee’s (FOMC) March meeting minutes added to the pressure on USD.
The minutes revealed that policymakers considered pausing the Fed’s hiking cycle last month, following the turmoil in the US banking sector. Additionally, the Fed expects a mild recession later this year due to the banking crisis and the following financial instability.
Today, markets are continuing to scale back interest rate rise bets, dragging USD lower. In addition, the prospect of a US recession is draining the Dollar’s appeal.
Pound (GBP) Limited by Disappointing GDP
Meanwhile, the Pound (GBP) is finding its gains capped following underwhelming UK GDP data.
The British economy stalled in February, rather than growing by 0.1% as was expected, as industrial action dragged on growth.
Although January’s growth was revised up from 0.3% to 0.4%, the overall picture is rather bleak. The UK is lagging behind other developed countries, with the economy having stalled since last spring.
Commenting on the figures, Tom Stevenson, Investment Director for Personal Investing at Fidelity International, said:
‘The British economy failed to grow at all in February, confirming that, while the UK may avoid recession, it is the weak link among the developed world’s economies. The UK’s growth is slower than in other rich countries and its inflation higher. We face a year of stagnation in 2023 before a modest rebound next year.’
The disappointing GDP release is capping the Pound’s upside today.
GBP/USD Exchange Rate Forecast: US Data to Dent the Dollar?
Looking forward to the remainder of the session, GBP/USD could strengthen this afternoon as more US data releases could further dampen Fed rate rise expectations.
The latest American producer price index is due out, giving an indication of wholesale inflation. After a 0.1% decline in February, economists expect the PPI to have stalled at 0% last month – a further sign of easing inflationary pressures. If the PPI prints as expected, USD could slip.
Furthermore, the latest initial jobless claims figures could put more pressure on the ‘Greenback’, if an expected uptick indicates a cooling labour market.
Turning to the Pound, a speech from Bank of England (BoE) Chief Economist Huw Pill could aid Sterling this afternoon. Pill has recently signalled his support for further interest rate rises. Any more hawkish comments could give GBP exchange rates a boost.