GBP/USD Wavers as US PPI Prints Above Forecasts
(Updated 16:45, 11/08/2023) The Pound US Dollar exchange rate weakened briefly this afternoon as producer prices in the US climbed by more than forecast in July.
An increase in headline PPI had been predicted, following on from Thursday’s report of consumer price growth; yet core producer price inflation was expected to fall. Instead, the annualised reading printed at 2.4% – unchanged from last month.
Concerns of ‘sticky inflation’ ensued, sparking speculation over whether the Federal Reserve may be persuaded to raise interest rates further. Philip Petursson, chief investment strategist at IG Wealth Management, said:
‘The real question is will the U.S. Federal Reserve be satisfied. From here, will it be a much slower grind or are they going to say we got to get there faster and raise rates further?’
Subsequently, GBP/USD ticked back up, potentially buoyed by a decline in US consumer sentiment. The Michigan consumer sentiment index printed above expectations at 71.2 – but nevertheless fell below the previous reading of 71.6.
Original article continues below:
Pound US Dollar (GBP/USD) Exchange Rate Spikes on UK Economic Growth
The Pound US Dollar (GBP/USD) exchange rate trended sharply upward this morning following the release of the UK’s GDP data for June. In the US, investors await this afternoon’s consumer sentiment release.
At the time of writing, GBP/USD is trading at $1.2705, an increase of over 0.2% compared with opening levels.
Pound (GBP) Rockets Up Amid Reports of Economic Expansion
The Pound (GBP) has shot up against its peers this morning as the latest UK GDP report revealed that the economy grew by more than expected.
According to the Office for National Statistic (ONS), GDP for the month of June reached 0.5%, beating forecasts of 0.2%. This marks the biggest growth rate since October last year, with production rising by 1.8%.
Moreover, the economy grew by 0.2% on a quarterly basis, rather than stagnating – and by 0.4% on an annualised basis. The news is reassuring to those concerned by recent downbeat forecasts, giving credence to the Bank of England (BoE)’s prediction that the UK will likely avoid recession in 2023.
There are some who have criticised the measure of GDP, as it neglects to account for such aspects as the contribution of unpaid carers – on whom the toll of the cost-of-living crisis has been great. Moreover, the UK is the only advanced economy yet to regain its pre-COVID, late-2019 level.
Nevertheless, markets’ response to the data is largely upbeat. Ed Monk, associate director for Personal Investing at Fidelity International, comments:
‘Growth in the second quarter of 0.2% was slightly above expectations, thanks to household expenditure that jumped between April and June – no mean feat on the face of the cost-of-living crisis we’ve seen.
For the optimists, the Britain has avoided recession while wage growth and the labour market have been resilient.’
US Dollar (USD) Trends Sideways ahead of Consumer Sentiment Release
The US Dollar (USD) is trading sideways against the majority of its peers this morning, following an overnight uptick. Optimism during the Asian session may have been prompted by indications that the Federal Reserve may not yet be finished with its policy tightening cycle.
Former Fed Governor Richard Clarida gave an interview on Wednesday in which he said ‘[The Fed] will want to keep their options open. In particular, they don’t want to declare ‘mission accomplished’ too soon.’
Subsequently, Fed Atlanta President Raphael Bostic gave upbeat remarks at an event yesterday evening. Bostic reassured investors that the US central bank was working hard to ease too-high inflation, while creating an environment consistent with maximum sustainable employment.
Into today’s European session, the ‘Greenback’ is rangebound as markets await this afternoon’s Michigan consumer sentiment release. If sentiment has declined according to this month’s reading, albeit marginally, USD could face headwinds.
Moreover, a decline in the country’s annualised core PPI data is likely to disillusion investors hopeful of a hawkish Fed. Due to repeat yesterday’s CPI pattern – an increase in headline inflation alongside easing core pressures, today’s release could dent US Dollar performance.
GBP/USD Forecast: US Data to Sway Exchange Rates?
The Pound US Dollar exchange rate is likely to be affected this afternoon by the release of consumer sentiment data and producer price inflation in the US.
An upbeat release regarding consumer morale would likely trigger USD tailwinds – sentiment is expected to sink, however, despite remaining near a twenty-one-month high. If the producer price index reveals further easing of core price pressures, a risk-on mood may further cap gains for the ‘Greenback’.
Meanwhile, if GBP traders continue to ride the wave of optimism following this morning’s GDP release, GBP/USD may bounce higher, achieving an overall incline over the course of the week.