Pound US Dollar (GBP/USD) Exchange Rate Remains Suppressed Following Disappointing UK CPI
The Pound US Dollar (GBP/USD) exchange rate remains muted this morning as it hits a weekly low, as Sterling sentiment continues to be undermined by the UK’s latest inflation figures.
At the time of writing, GBP/USD is trading at €1.2635. Virtually unchanged from today’s opening rate.
Pound (GBP) Subdued as UK Inflation Cools
The Pound (GBP) is facing headwinds today as yesterday’s inflation figures continue to sap Sterling sentiment.
Inflation was forecast to fall from 4.6% to 4.4% in November, however markets were shocked as the consumer price index plummeted to 3.9%.
This drastic drop continues to weigh on the Pound this morning, as it stokes speculation that the Bank of England (BoE) will begin cutting interest rates earlier than previously thought.
An Associate Director at Fidelity International Ed Monk, commented:
‘Another significant drop in inflation in November only adds to the case that interest rates will fall sooner than expected. The Bank of England has been talking tough, but price rises appear on a rapid decline back towards the Bank’s target range and it may soon be that the risk for rate-setters is not under-tightening but over-tightening.’
Today brings with it limited UK data, with the only notable data release coming in the form of the Confederation of British Industry’s (CBI) latest distributive trades index.
The results of today’s CBI were expected to show a slight decrease, from -11 in November, to a predicted -12 for this month’s result.
However, the CBI printed at -32 this morning, showing a seventh consecutive month of contraction.
This could add to the already mounting pressure on the Pound.
US Dollar (USD) Mixed ahead of Final GDP Figure
The US Dollar (USD) is holding steady this morning, as markets await the final US GDP estimate for the third quarter.
This afternoon’s data is expected to confirm the US economy grew by 5.2% between July and September.
This is a sharp increase from the second quarter’s 2.1% expansion in growth.
If the upcoming results confirm or beat expectations, this could help to ease Federal Reserve interest rate expectations and lend the ‘Greenback’ support against its peers.
Today also brings the release of the latest initial jobless claims. With the amount of people filing for unemployment in the US expected to have risen last week, this could cap any potential gains to the US Dollar.
GBP/USD Exchange Rate Forecast: Friday’s Data in the Spotlight before Christmas
Looking ahead, the publication of the UK’s latest retail sales figures could help the Pound US Dollar exchange rate mount a recovery on Friday.
Analysists expect November’s data will report sales growth rebounded from -0.3% to 0.4%. Could an upbeat release help to bolster the outlook for the UK economy and prompt GBP investors to wind in their BoE rate cut bets?
Across the Atlantic, Friday also brings an important data release for the US Dollar in the form of the Federal Reserve’s preferred measure of inflation, the core PCE price index.
November’s index is expected to show US inflation fell from 3.5%, to 3.3% in November.
The persistent fall in inflation is likely to dent the US Dollar before the holidays as this may support market expectations of Fed cut bets in early 2024.