Pound US Dollar (GBP/USD) Exchange Rate Slides to $1.28 as UK Reaches Inflation ‘Turning Point’

GBP/USD Exchange Rate Extends Losses on Below Forecast UK Inflation

(Updated: 13:50, 19/07/23) The Pound US Dollar (GBP/USD) exchange rate remains under pressure this afternoon. The GBP/USD exchange rate dipped as low as $1.28 as the Sterling selloff continues to gather pace.

This comes as analysts hail today’s weaker-than-expected CPI figures as a potential ‘turning point’ in the UK’s fight against inflation.

While the Bank of England still has some way to go to return inflation to its 2% target, GBP investors are betting June’s figures will allow the BoE to take its foot off the pedal a little.

Elsewhere the US Dollar continues to catch bids, courtesy of a risk-off market mood.

Original article continues below:

Pound US Dollar Exchange Rate Tumbles as UK Inflation Falls to 15-Month Low

The Pound US Dollar (GBP/USD) exchange rate is trading with heavy losses this morning, after UK inflation printed below expectations for the first time in five months.

At the time of writing the GBP/USD exchange rate is trading at around $1.2930. Down roughly 0.8% from this morning’s opening levels.

Pound (GBP) Slumps as Market Reprice BoE Rate Hike Expectations

The Pound (GBP) is faces notable headwinds this morning, following the publication of the UK’s consumer price index.

According to data published by the Office for National Statistics (ONS), headline inflation decelerated from 8.7% to 7.9% in June. Below forecasts inflation would only cool to 8.2%.

The accompanying core figures also printed below expectations. With underlying inflation also unexpectedly cooling from 7.1% to 6.9%.

The figures triggered a sharp drop in the Pound as markets began to reprice expectations for future Bank of England (BoE) interest rate hikes.

Markets now see the BoE raising rates by 25bps in August. Prior to today’s CPI release the consensus was for a 50bps increase.

In addition to this, analysts are predicting UK interest rates will no longer peak above 6%.

Paul Dales, Chief Economist at Capital Economics, comments:

‘Overall, the UK will probably still have higher rates of inflation than elsewhere for a while yet… Even so, we think rates are more likely to peak between 5% and 6% than between 6% and 7%.

However, the pullback in rate hike expectations hasn’t been enough to erase UK growth concerns. With the slump in the Pound US Dollar exchange rate being compounded by fears the BoE could still tighten the UK into a recession.

US Dollar (USD) Buoyed by Cautious Market Mood

The US Dollar (USD) is supported this morning by a broadly downbeat market mood.

Skittish investors are favouring the safe-haven currency amid ongoing concerns over global growth.

This follows the publication of China’s latest GDP figures earlier in the week. A weaker-than-expected expansion in the second quarter revived concerns over China’s economic recovery and the wider impact on the global economy.

However the upside in the US Dollar is also being tempered this morning by a decline in US Treasury yields.

Pound US Dollar Exchange Rate Forecast: Rise in US Jobless Claims to Weaken USD

Looking ahead to the second half of the week, the Pound US Dollar exchange rate could recoup some of its losses with the publication of the latest US initial jobless claims.

An expected rise in new jobless claims last week could revive concerns the US labour market is slowing. This in turn could weaken Federal Reserve interest rate expectations and pull the US Dollar lower.

For GBP investors the focus will be the publication of the UK’s latest retail sales figures on Friday. Could an expected slowing of sales growth last month pull the Pound lower?

Matthew Andrews

Contact Matthew Andrews

Do Not Sell My Personal Information