Pound US Dollar (GBP/USD) Exchange Rate Slips as Markets Pare Back BoE Bets
The Pound US Dollar (GBP/USD) exchange rate dropped this morning after a weaker-than-forecast UK consumer price index dented Bank of England (BoE) interest rate hike bets.
At the time of writing, the GBP/USD exchange rate is trading at around $1.2462, down almost 0.3% on the day.
Pound (GBP) Slides as UK CPI Misses Forecasts
The Pound (GBP) took a tumble this morning as the UK’s October CPI figures missed forecasts.
Headline inflation cooled rapidly last month, from 6.7% to 4.6%, versus forecasts of 4.8%. Meanwhile, core inflation also eased more than expected, dropping from 6.1% to 5.7% rather than 5.8%.
This notable drop in inflation has dampened investor expectations that the BoE will raise interest rates again. The BoE recently hit pause on its rate hiking cycle, with policymakers preferring to gauge the impact of policy tightening rather than risk damaging the UK economy.
Today’s inflation release will be met with a sigh of relief at Threadneedle Street. Policymakers will likely opt to leave rates unchanged at their next meeting while waiting to see if inflation continues to decline.
The subsequent pullback in BoE bets pulled the Pound sharply lower this morning. However, an upbeat market mood seems to be limiting the increasingly risk-sensitive currency’s downside.
US Dollar (USD) Capped by Upbeat Mood
Meanwhile, the US Dollar (USD) has managed to climb against Sterling, although its upside seems limited.
USD has recouped some of the losses it suffered yesterday after US inflation also missed forecasts, thereby denting Federal Reserve interest rate rise bets. However, the American currency still remains sharply lower against the Pound than it was before yesterday’s US CPI.
Also capping the safe-haven US Dollar’s upside today is a risk-on market mood. Investors around the world are hopeful that the aggressive rise in borrowing costs is at an end, as inflation in the US, UK and Eurozone seems to be falling steadily.
The cheery tone in markets is stifling USD’s upside potential against the riskier Pound.
GBP/USD Exchange Rate Forecast: Weak US Data to Dent the Dollar?
Looking ahead, the GBP/USD exchange rate could regain some ground this afternoon as more weak US data could dent the ‘Greenback’.
The latest American producer price index is expected to show a significant slowdown in wholesale inflation on a monthly basis in October. If it prints as expected, it could further undermine Federal Reserve interest rate hike bets and thereby weigh on USD.
In addition, US retail sales are forecast to have shrunk by 0.3% in October. Declining consumer spending could indicate that the resilience of the US economy is starting to fade, which may fuel speculation that the Fed is finished with its tightening cycle.
Meanwhile, risk appetite could continue to impact the currency pairing. If the market mood remains upbeat, the GBP/USD exchange rate could resist steeper losses.