Pound US dollar exchange rate plunges to eight-week low
The pound US dollar (GBP/USD) exchange rate plummeted at the start of today’s session with the release of the UK’s latest inflation figures.
At the time of writing the GBP/USD exchange rate is trading at around $1.2998. Down roughly 0.5% from this morning’s opening levels.
Pound (GBP) tumbles as UK inflation cools
The pound (GBP) is trading with notable losses this morning, following the publication of the UK’s latest consumer price index.
According to data published by the Office for National Statistics (ONS), UK inflation plunged from 2.2% to 1.7% in September. This was below the drop to 1.9% forecast and was also the weakest UK inflation print since April 2021.
Most importantly this places headline inflation firmly below the Bank of England’s (BoE) 2% target.
Coupled with yesterday’s wage growth figures, this is stoking bets the BoE will deliver consecutive interest rate cuts in November and December, placing significant pressure on the pound.
Lindsay James, investment strategist at Quilter Investors, comments:
‘For the first time in more than three years inflation is back below the Bank of England’s 2% target. With inflation falling below this level and the pace of wage growth slowing, the conditions appear ripe for another rate cut at the Bank of England’s next decision in early November, and maybe even the one after in December too.’
However, the expected fall in UK interest rates is also helping to bring down UK government borrowing costs.
This has placed a floor underneath the pound as it could provide Chancellor Rachel Reeves with more fiscal headspace for her upcoming budget.
US dollar (USD) tempered by Fed rate cut bets
While the US dollar (USD) is marching higher against the pound this morning, the currency is struggling to replicate this success against its other peers.
This is driven by dovish Federal Reserve interest rate expectations. USD investors are growing confident the US central bank will deliver a series of interest rate cuts in the coming months and are pricing the currency accordingly.
This is offsetting any gains stemming from this morning’s broadly risk-averse market mood. Which may otherwise have helped underpin USD demand.
Pound US dollar exchange rate forecast: US retail sales to bolster USD?
Looking ahead to the second half of the week. The pound US dollar exchange rate may come under additional pressure on Thursday with the release of the latest US retail sales figures.
September’s data may boost the ‘greenback’ as its forecast to report sales growth began to accelerate again after slowing to a crawl in August.
However, the rebound in sales is expected to be fairly modest in scope, which may limit the US dollar’s upside potential.
Meanwhile, UK economic data is in short supply on Thursday. This may leave GBP investors to digest today’s inflation figures and speculate on how this will shape the BoE’s policy outlook, potentially leaving the pound vulnerable to further losses in the process.