Pound US Dollar (GBP/USD) Exchange Rate Slumps as US CPI Beats Forecasts
(Updated 14:10, 12/10/23) The Pound US Dollar (GBP/USD) exchange rate fell sharply today in the wake of the US consumer price index for September.
The CPI showed that headline inflation held steady at 3.7% in September, rather than easing to 3.6% as was expected. This saw markets increase bets on another interest rate rise from the Federal Reserve before the end of the year, with the FedWatch tool showing that the probability of a hike in December is at 37.5% today, up from 26% yesterday. This gave the US Dollar (USD) a boost.
Meanwhile, the UK’s lacklustre GDP results – as reported below – have continued to apply some pressure to the Pound (GBP).
The GBP/USD exchange rate is currently trading at $1.2265, having fallen 0.5% from this morning’s high point of $1.2331.
Original article continues below:
Pound US Dollar (GBP/USD) Exchange Rate Falters amid UK Economic Concerns
The Pound US Dollar (GBP/USD) exchange rate seemed to hit a ceiling this morning, ending its recent winning streak, after the UK’s latest GDP report.
At the time of writing, GBP/USD is trading at $1.2295, modestly down on the day but still close to its recent three-week highs.
Pound (GBP) Stifled by Lacklustre GDP
The Pound (GBP) stumbled this morning, easing off its recent highs against the US Dollar (USD), as markets reacted to the UK’s latest GDP report.
While the UK economy rebounded 0.2% in August, as expected, GDP in the previous month contracted more than initially believed. July’s growth came in at -0.6%, rather than -0.5%.
Analysts have been responding to today’s data, with many experts warning that the UK economy could still face a recession.
Melanie Baker, Senior Economist at Royal London Asset Management, commented:
‘For now, the picture of the economy coming from the data is lacklustre. Given how much monetary policy tightening we’ve had it is still somewhat surprising that the UK economy has managed to avoid recession so far. I am not convinced it will continue to do so.’
Meanwhile, Sandra Horsfield, Senior Financial Markets Economist at Investec, believes the UK economy will have either contracted or stagnated over the third quarter.
This news seems to have knocked the Pound slightly, although Sterling is showing resilience. While GBP has softened, it is still holding near a three-week high against USD.
US Dollar (USD) Struggles Ahead of US Inflation
The weakness in the US Dollar comes as markets continue to rethink the probability of more interest rate rises from the Federal Reserve.
This week, multiple Fed policymakers – including some of the most hawkish voices at the US central bank – have signalled that US interest rates may already have peaked.
Last night, the minutes from the Fed’s September meeting sounded more dovish than expected. Policymakers were focused on how long rates should stay restrictive for, not how much higher they should go, indicating that the bank is indeed done raising interest rates.
This is maintaining pressure on USD today, although investors are refraining from any drastic decisions ahead of the US consumer price index due out this afternoon.
GBP/USD Exchange Rate Forecast: US Inflation to Drive the ‘Greenback’ Lower?
Looking ahead, the US CPI now takes centre stage.
Economists expect both headline and core inflation to have cooled in the US in September. If so, this could add to the ongoing pullback in Federal Reserve rate hike bets and weigh heavily on the US Dollar.
If the CPI prints as forecast, or comes in below expectations, we may see GBP/USD test new multi-week highs.
Conversely, if the data points to more stubborn price pressures in the US then the ‘Greenback’ could rally strongly.