Pound US Dollar (GBP/USD) Exchange Rate Narrows despite Cooler-Than-Expected CPI
Article updated 16:56, 10/8/23:
The Pound US Dollar (GBP/USD) exchange rate is trading in narrow boundaries this afternoon, despite cooler-than-expected US inflation.
Upon the release of July’s CPI data, which showed headline inflation hit 3.2% as opposed to forecasts of 3.3%, the ‘Greenback’ cratered against its rivals.
Since, USD rates have managed to recover, following hawkish comments from Federal Reserve official Mary Daly. She indicated that, while the report was good news, the Fed had more to do.
Daly stated:
‘It is not a data point that says victory is ours. There’s still more work to do. And the Fed is fully committed to resolutely bringing inflation back down to its 2% target.’
As such, renewed rate hike bets prompted a modest recovery for the ‘Greenback’, but not enough to fully reverse it’s losses.
At the time of writing, GBP/USD is trading at around US$1.2720, sticking close to the morning’s opening rates.
Original article continues below:
Pound US Dollar (GBP/USD) Exchange Rate Rises ahead of US CPI Release
The Pound US Dollar (GBP/USD) exchange rate is strengthening this morning, as investors anticipate the afternoon’s US inflation data.
At the time of writing, GBP/USD is trading around US$1.2761, rising by just over 0.3% from the morning’s opening rates.
US Dollar (USD) Quietens as Investors Await Afternoon Data
The US Dollar (USD) is weakening this morning, as investors anticipate the afternoon’s consumer price index release. Over July, headline CPI is forecast to have increased to 3.3%, up from June’s low of 3%.
If this prints as predicted, it may spark further rate hike bets from the Federal Reserve, negating recent dovish comments. However, some economists anticipate the monthly releases to print in line with Fed expectations.
Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE at ING, commented:
‘Consensus expects 0.2% MoM readings for both headline and core today – consistent with inflation running closer to the Fed’s 2% target. However, US activity data – especially the labour market and consumption data – have been stronger than expected and are likely to keep the Fed on guard for longer.’
As such, the afternoon’s jobless claims data is also likely to be kept under a close watch. The number of claims is expected to have increased, which may indicate growing slack in the labour market.
Pound (GBP) Firms despite Lack of Clear Catalyst
Despite a quiet start to the day, the Pound (GBP) is managing to attain support against some peers, such as the US Dollar.
Owing to a light data calendar, Sterling’s increasingly risk-sensitive nature is the likely cause for this movement. Markets are currently trading on a cautiously optimistic note, lending modest strength to GBP.
However, these gains may be being capped by persistent turbulence in the UK housing market. Recent rate hikes from the Bank of England (BoE) have been bearing down on prices, and have prompted the lowest level since April 2009.
Victoria Scholar, Head of Investment at Interactive Investor, explained:
‘This data echoes recent reports from Nationwide and Halifax suggesting that the Bank of England’s aggressive stream of 14 consecutive rate hikes and the consequent surge in mortgage costs are sharply weighing on the housing market.’
GBP/USD Exchange Rate Forecast: UK GDP Stall to Weigh on Sterling?
Tomorrow, the latest GDP data for the UK is set for publication. On a quarterly basis, the UK economy is forecast to have stalled, which may weigh on Sterling by sparking recession anxieties.
As the UK’s economic outlook has been persistently downbeat in recent times, signs of further slowdown may worry investors.
For the US Dollar, July’s producer price index data is set for print tomorrow afternoon. Economists are forecasting a 0.2% increase on a monthly basis, which could strengthen the ‘Greenback’ by sparking renewed hike bets.
Elsewhere, risk appetite is likely to play a role in the pairing’s direction. As a safe-haven currency, a sour mood could boost USD rates.