Pound US Dollar (GBP/USD) Exchange Rate Fluctuates Higher following Hot UK Inflation
(Updated 15:45, 19/4/23) The Pound US Dollar (GBP/USD) exchange rate fluctuated today as markets responded to the UK’s latest inflation rate reading.
The Pound (GBP) initially jumped higher after the UK CPI exceeded forecasts, cementing bets on another Bank of England (BoE) interest rate hike next month and thereby boosting Sterling.
However, GBP/USD shed these gains as a risk-off mood supported the safe-haven US Dollar (USD). Rising US Treasury bond yields also aided the ‘Greenback’.
Sterling then managed to bounce back at midday, regaining the day’s high point.
At the time of writing, GBP/USD is trading at $1.2460, up around 0.3% on the day.
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Pound US Dollar (GBP/USD) Exchange Rate Rises as UK CPI Beats Forecasts
The Pound US Dollar (GBP/USD) exchange rate shot higher this morning after the UK consumer price index exceeded forecasts, thereby boosting Bank of England (BoE) interest rate rise expectations.
At the time of writing, GBP/USD is trading at $1.2445, up from its opening level of $1.2413 but having retreated from an earlier high of $1.2472.
Pound (GBP) Buoyed amid BoE Rate Hike Bets
The Pound (GBP) surged higher this morning after the UK’s latest CPI surprised to the upside.
Headline inflation fell less than forecast last month, easing from 10.4% to 10.1%, rather than the expected 9.8%. Meanwhile, core inflation held steady at 6.2%, instead of cooling to 6%.
The hotter reading follows the previous month’s unexpected uptick in inflation, with price pressures in the UK proving much stickier than in other economies around the world. As a result, markets are now fully pricing in at least one more rate hike from the BoE.
Golly
Less than a month ago investors were betting @bankofengland interest rates would peak at 4.5% – or even 4.25%.
Now they’re betting they’ll hit 5% this year. Highest projected rate since mini-budget fallout.
Another consequence of unexpectedly high and stubborn inflation pic.twitter.com/0dHsMkXBvN— Ed Conway (@EdConwaySky) April 19, 2023
With traders betting on ongoing action from the BoE, Sterling is strengthening.
However, GBP’s upside may be capped amid fears about the UK economy. If the BoE continues to hike interest rates, it could tip the UK economy into a recession. Meanwhile, surging food inflation is putting even more pressure on already cash-strapped consumers amid the country’s cost-of-living crisis.
US Dollar (USD) Shored Up by Risk-Off Mood
At the same time, the US Dollar (USD) is resisting heavier losses thanks to a risk-off market mood underpinning the safe-haven currency.
The downbeat mood in markets overnight has spread into today’s trade, with the hot UK inflation reading adding to investors’ worries.
In addition, rising US Treasury bond yields are lending the ‘Greenback’ some support. The yield on the 10-year US Treasury note leapt higher this morning, as markets continue to price in another Federal Reserve rate hike following recent hawkish rhetoric from Fed policymakers.
This bolstered the US Dollar, limiting its losses against the strengthening Pound.
GBP/USD Exchange Rate Forecast: Sterling to Stay Strong?
Looking ahead, Sterling may be able to retain its strength today amid a lack of further economic data on both sides of the Atlantic.
One factor that could drive more movement is risk appetite. If the market mood remains downbeat, GBP/USD could trim its gains. However, if sentiment were to brighten then the Pound could climb even higher.
Tomorrow may initially bring muted movement but the evening could see the ‘Greenback’ regain some ground. Federal Reserve policymaker Christopher Waller is due to speak, and his hawkish comments last week sparked a USD rally. Could more hawkish remarks help the US Dollar recoup losses tomorrow?