Pound US Dollar (GBP/USD) Exchange Rate Hits Year-Long High amid US PPI Cooldown
(Article updated 16:37, 14/6/23) The Pound US Dollar (GBP/USD) exchange rate is climbing this afternoon, following the latest US producer price index data.
Released this afternoon, the latest PPI data printed below forecasts, coming in at -0.3%, below expectations of -0.1%.
This fall has largely confirmed to investors that the Federal Reserve won’t raise interest rates this evening, amid other signs of continued cooling inflation.
Christopher Rupkey, Chief Economist at FWDBONDS, commented:
‘Inflation isn’t finished wreaking its havoc on the economy yet, but we can see the day is coming when inflation will come down to more manageable levels after the pandemic demand surge completely dissipates.’
With this in mind, investors appear to be moving toward riskier assets, as sentiment wanes toward the safe-haven ‘Greenback’.
However, a hawkish angle to the Fed’s likely pause could reverse these losses for USD.
At the time of writing, GBP/USD is trading at US$1.2695, an increase of just under 0.7% from the morning’s opening rates.
Pound US Dollar Exchange Rate Firms amid Cheery UK GDP Data
The Pound US Dollar exchange rate is firming this morning, following news of an expansion in the UK’s GDP.
At the time of writing, GBP/USD is trading at around US$1.2635, rising by just under 0.2% from the morning’s opening rates.
Pound (GBP) Firms on Upbeat Economic Growth
The Pound (GBP) is firming this morning, after the news that the UK’s economy had expanded by 0.2% in April.
As such, this is reflective of a strong recovery on a monthly basis – significantly above March’s print of -0.3%. By demonstrating resilience, it appears to be sparking elevated rate hike bets. According to ING, roughly 132 bps of further tightening has begun to be priced in.
However, the GDP print wasn’t entirely promising with economists expressing some concerns. Suren Thiru, Economics Director at the Institute of Chartered Accountants in England and Wales (ICAEW), commented:
‘April’s upbeat reading should be followed by a notable decline in May GDP as the extra bank holiday for the Coronation and ongoing strike action will have stifled activity across much of the economy.’
Investors are likely shrugging off this tepid analysis, focusing instead on the Bank of England’s (BoE) imminent rate hike.
US Dollar (USD) Quiet Ahead of Fed Decision
The US Dollar (USD) is trading quietly this morning, ahead of the Federal Reserve’s interest rate decision this evening.
Furthermore, as yesterday’s inflation data printed in line with forecasts, markets have been cautiously upbeat. As a safe-haven currency, this is likely preventing the ‘Greenback’ from gaining much ground against its peers.
However, economists are suspecting that the Fed may enact a ‘hawkish pause’. Francesco Pesole, FX Strategist at ING, explained:
‘The Fed wants to see a 0.2% MoM or below CPI readings to feel confident inflation will return to target, and this is why we think today’s statement will include a quite explicit openness to further tightening in the future, which could be expressed via the wording “future increases may be appropriate”.’
Elsewhere, risk appetite is continuing its tentative return this morning, which may be weighing on the safe-haven ‘Greenback’.
GBP/USD Forecast: US PPI to Dent USD Ahead of Fed Decision?
Moving into this afternoon, and ahead of the Fed’s decision, the latest US PPI data is due to print. Economists are forecasting a contraction of 0.1% in May, which could weigh on the ‘Greenback’.
As a pause is firmly considered, a slowdown in PPI could add further fuel to the fire, as PPI falls are likely to filter through.
On Thursday, the latest US retail sales data is due to print. A contraction of 0.1% is forecast, which could weaken the ‘Greenback’ due to the importance of consumption in the US economy.
Meanwhile, for the Pound, the data calendar is due to be much lighter through to the end of the week.
As such, Sterling could be limited in its movements during these sessions. However, continued bets on further tightening from the Bank of England may keep GBP afloat.