Pound US Dollar (GBP/USD) Falls from Ten-Month High
(Updated 16:35, 14/4/23) The Pound US Dollar (GBP/USD) exchange rate plunged today, falling further from a ten-month high hit overnight, after hawkish comments from a Federal Reserve official sparked renewed interest in the US Dollar (USD).
Fed Board Governor Christopher Waller argued that more interest rate rises were needed as underlying measures of inflation had ‘basically moved sideways with no apparent downward movement’. Waller added:
‘Monetary policy needs to be tightened further. How much further will depend on incoming data on inflation, the real economy, and the extent of tightening credit conditions’.
The comments reignited bets on at least one more hike from the Fed, after recent inflation data had dampened rate rise expectations.
Meanwhile, a larger-than-expected slump in US retail sales seems to have soured the market mood. The risk-off tone is lending further support to the safe-haven ‘Greenback’.
At the time of writing, GBP/USD is trading at around $1.2422, having slumped more than a cent from today’s ten-month high of $1.2546.
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Pound US Dollar (GBP/USD) Exchange Rate Weakens in European Trade
After hitting a fresh ten-month high overnight, the Pound US Dollar (GBP/USD) exchange rate retreated in early European trade as Sterling suffered some profit-taking.
At the time of writing, GBP/USD is trading at $1.2506, almost half a cent down from an earlier high of $1.2546.
US Dollar (USD) Languishes Near Multi-Month Low
The US Dollar (USD) remains subdued today, although it has managed to crawl up from a ten-month low against the Pound (GBP).
The American currency is still reeling from fresh evidence that US inflation is cooling rapidly, with markets scaling back Federal Reserve interest rate rise expectations as a result.
On Wednesday, US headline inflation cooled more than forecast, dropping a full percentage point to 5% – a near two-year low. This was followed by the Federal Open Market Committee’s (FOMC) dovish meeting minutes on Wednesday evening, and a shock 0.5% contraction in US PPI – a measure of wholesale inflation – yesterday.
Today, USD is licking its wounds as investors await more American data this afternoon.
Pound (GBP) Ticks Lower amid Profit-Taking
This morning’s downside in GBP/USD seems to be due to profit-taking around the Pound. After Sterling hit a ten-month high against the ‘Greenback’, some traders are choosing to cash in on the pairing.
There may also be an element of the Pound being overbought against the US Dollar, considering yesterday’s disappointing GDP results. Furthermore, investors are likely reluctant to buy the Pound amid an absence of UK economic data.
GBP/USD Exchange Rate Forecast: More Downbeat Data to Dent the US Dollar?
Looking ahead, some high-impact data later today could pile fresh pressure on the US Dollar.
The first major release is the latest US retail sales report. Economists expect American domestic sales to have contracted by 0.4% last month, following a same-sized decline in February. If the data prints as expected, it will add to growing evidence that the US economy is slowing down in response to the Fed’s policy tightening measures.
The Fed wants to achieve a ‘soft landing’ – raising interest rates to bring inflation down but without crashing the economy. Signs of US economic weakness will support the argument that the Fed must now stop raising borrowing costs, which in turn could dent USD.
Additionally, April’s consumer sentiment report later in the afternoon could add to this. Forecasters expect consumer morale to hold steady this month, but last month’s report showed an unexpected decline. Could another downbeat reading reveal further evidence that the US economy is weakening?
As for the Pound, data is thin through the majority of the session so most GBP/USD movement may come from the US Dollar’s side.
Late afternoon, Bank of England (BoE) policymaker Silvana Tenreyro is due to speak. As one of the most dovish rate setters on the bank’s Monetary Policy Committee (MPC), Tenreyro could dent Sterling by reiterating the possibility of rate cuts later this year.