Currency News: Impressive UK Inflation Sees Pound US Dollar Exchange Rate Climb

December 13, 2016 - Written by Toni Johnson

STORY LINK Currency News: Impressive UK Inflation Sees Pound US Dollar Exchange Rate Climb

The Pound to US Dollar exchange rate succeeded in holding its Monday gains and continued edging higher thanks to the day’s solid UK Consumer Price Index (CPI) results. Expectations of a Fed rate hike kept the ‘Greenback’ firm.

GBP/USD has gained over a cent since markets opened this week. On Monday, GBP/USD climbed from opening levels of 1.2570 to around 1.2680. Tuesday saw the pair hit a weekly high of 1.2719, but the pair failed to hold this level.

Pound (GBP) Strengthens on November Consumer Price Report

Tuesday’s UK data gave the Pound another defence boost following Monday’s strong GBP trade, as UK Consumer Price Index (CPI) figures beat expectations.

Inflation met expectations of 0.2% month-on-month, and in its year-on-year result improved from 0.9% to 1.2% beating the expected result of 1.1%. Interestingly, the Core inflation figure also beat expectations and improved to 1.4%.

This also increased hopes among some analysts that the Bank of England (BoE) could hike UK interest rates from their record lows in the coming year, despite comments from the BoE in recent months that inflation spikes caused by Sterling value would likely be brushed over.

As well as hopes for a long Brexit transition period increasing over the last week, this new UK inflation result added to the Pound’s increasingly sturdy underlying factors.

US Dollar (USD) Firms as Wednesday’s Federal Reserve Decision Approaches

Investors have been adjusting their positions on the US Dollar since markets opened this week, highly anticipating Wednesday’s Federal Reserve meeting.
Recent US data has been generally solid and despite some comments from US President-elect Donald Trump causing some uncertainty in markets, bets of a December rate hike are around a considerably high 97%.

The wide-consensus that a rate hike is on the way has meant a period of extended strength for the US Dollar, with the new presumed interest rate of 0.75% already largely priced into USD trade.

Traders have begun to look forward to 2017 and its potential for Fed interest rate hikes, but this has limited USD advances slightly as many expect the Fed will not be as bullish as it states after a disappointingly hike-lite 2016.

GBP/USD Forecast: Losses Ahead for Pound if Fed Hikes Rates

The Pound to US Dollar exchange rate is unlikely to advance much in the coming days. Market excitement surrounding Wednesday’s Federal Open Market Committee (FOMC) decision will keep the US Dollar firm throughout the day and likely limit any potential GBP bullishness.

The US Dollar may surge if the Fed hikes US interest rates to 0.75% as expected. However, the ‘Greenback’ may also simply firm its ground and advance slightly as an interest rate hike is largely priced into the value of USD already.

On the other hand, in the small possibility that the Fed leaves rates frozen the US Dollar will plummet which would lead to GBP/USD making significant gains towards the end of the week.

With the Federal Open Market Committee (FOMC meeting being the core focus in foreign exchange markets for the coming days, other upcoming UK and US ecostats are unlikely to cause much change in GBP/USD movement.

Wednesday will see Britain’s November jobless claims and October unemployment results, as well as US’ November advance retail sales.

As it stands, GBP/USD is likely to fall in the coming days but may recover slightly towards the end of the week if the US Dollar’s rate hike rally is perceived as having been already priced into USD value.

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