Pound US dollar (GBP/USD) tumbles amid cooler-than-forecast US inflation
Article updated 16:30, 11/09/2024
The pound US dollar (GBP/USD) exchange rate slumps to a fresh three-week low this afternoon following the latest batch of American inflation data.
The data revealed that the US consumer price index (CPI) fell to its lowest level since February 2021 last month, printing at 2.5% in place of a softer decline to 2.7% and easing from July’s reading of 2.9%.
Amid an ongoing surge in Federal Reserve interest rate cut bets, news of cooler-than-expected US price pressures cements market speculation that the central bank will likely enact an aggressive policy-easing cycle in the near term.
James McCann, Deputy Chief Economist at the investment firm abrdn, commented:
‘Indeed, the Fed looks set to cut rates by 25 basis points at every meeting this year with the bar for larger 50bps moves not particularly high if we were to see further growth scares.’
However, as cautious trade permeates global markets, the safe-haven US dollar appeared to find its legs following a prolonged period of weakness in recent weeks.
Meanwhile, the pound trended broadly lower as markets digested this morning’s weak influx of downbeat UK data. News of stalling UK economic growth and decreased industrial output served to reinforce speculation that the Bank of England (BoE) could enact two further interest rate cuts this year, as Hargreaves Lansdown’s Head of Money and Markets Susannah Streeter explains:
‘[The data would] reinforce expectations for two rate cuts in the months to come, but the jury is still very much out when it comes to next week’s decision.
Financial markets have been assessing the chance that rates will be kept on hold as above 75%, so this data point alone is unlikely to move the dial significantly.’
Looking ahead, could news of stubborn producer prices in the US lend the ‘greenback’ modest support tomorrow?
At the time of writing, GBP/USD is trading at around $1.3203, down approximately 0.6% from today’s opening levels.
Original article continues below:
Pound US dollar (GBP/USD) wavers as UK GDP misses forecasts
The pound US dollar exchange rate is rangebound this morning following a weaker-than-forecast economic growth report in the UK.
At the time of writing the GBP/USD exchange rate is trading at around $1.3089, virtually unchanged from this morning’s opening rate.
Pound (GBP) dips following GDP release
The pound (GBP) is struggling to attract investor support this morning following the latest UK’s latest GDP data.
The UK economy unexpectedly stalled in July, missing expectations of a 0.2% expansion and slowing from the previous month’s 0.2% growth.
Additionally, British industrial production weakened in July, dropping by 0.8% rather than growing by 0.3% as forecast. Meanwhile, manufacturing production in the UK retreated form a four-month high in July, falling by 1%, against forecasts of a 0.2% rise.
However, with the Bank of England’s (BoE) policy-easing cycle in view, analysts believe that today’s disappointing set of data does not carry enough weight to impact the bank’s prospective unwinding cycle.
Luke Bartholomew, Deputy Chief Economist at abrdn, said:
‘The broader trend remains solid, although it is likely that the underlying pace of growth will slow somewhat over the second half of the year.
Certainly, there is no reason yet for the Bank and England to feel it needs to speed up the pace of rate cuts, and we expect the Bank to keep interest rates on hold next week.’
As a result, GBP’s losses appeared largely limited, leaving the pound to trade in a narrow range against its peers this morning.
US dollar (USD) stumbles ahead of inflation data
The US dollar (USD) continues to hobble close to multi-month lows this morning as markets brace for the latest American inflation report.
Ahead of the high-impact release, investors appear largely hesitant to place any aggressive bets on the ‘greenback’ amid growing consensus that rapidly easing US price pressures could see the Federal Reserve enact an aggressive policy-easing cycle in the near term.
Fed rate cut bets have surged in recent weeks as signs of cooling American inflation and a deteriorating US labour market feed into rising US recession woes.
However, as Eugene Epstein, Head of Structured Products, North America at Moneycorp in New York, comments, a slight softening of such bets may lend USD support this afternoon:
‘So we have been grinding higher from the lows in late August and the driver of that has been mainly on the rates front. The market had pretty high expectations on the Fed cut next week … but some of those expectations have been dialled back.’
Although, with headline inflation is forecast to dip to 2.7% in August, USD will likely fall further this afternoon amid a further uptick in Fed rate cut speculations.
Pound US dollar exchange rate forecast: US inflation to sink the ‘greenback’?
Looking ahead, the latest US inflation data may be the core catalyst of movement for the pound US dollar exchange rate this afternoon.
Further signs of rapidly easing US price pressures may reinforce speculation of a 50bps interest rate reduction by the Fed this month. Alternatively, a stickier-than-forecast reading may prompt a slight pullback in Fed policy expectations.
Looking to the UK, a lack of further releases today could see unfolding market response to this morning’s release weigh on the pound. Meanwhile, global risk dynamics may impact the increasingly risk-sensitive currency, with any gloomy trade likely to weigh on GBP exchange rates.