USD GBP Exchange Rate Slides as UK Inflation Expected to Hold Steady

April 10, 2017 - Written by Tim Boyer

STORY LINK USD GBP Exchange Rate Slides as UK Inflation Expected to Hold Steady

The US Dollar to British Pound exchange rate dropped on Tuesday afternoon. When American markets opened, US traders expressed their uncertainty in US President Trump’s rhetoric on Syria and North Korea by selling the US Dollar.

While the US Dollar is a typically ‘safe haven’ currency, UK government bonds, priced in GBP, were seen as comparatively safe on Tuesday due to US political uncertainty.

[Previously updated 11/04/2017]

Steady inflationary pressure was not enough to keep the Pound on a stronger footing, especially as the British Retail Consortium like-for-like sales data showed a further contraction in consumer spending.

Expectations for the Federal Reserve to pursue a more aggressive pace of monetary tightening mounted, meanwhile, thanks to comments from Fed Chair Janet Yellen.

[Previously updated 10/04/2017]

The USD GBP exchange rate fell by around -0.33% on Monday as investors flocked to the Pound ahead of tomorrow’s UK Consumer Price Index.

US Dollar Pound (USD GBP) Weakened Ahead of UK Inflation Data

The US Dollar Pound (USD GBP) exchange rate tumbled at the start of trading this week as demand for Sterling ticked higher ahead of the UK’s latest CPI on Tuesday.

Economists polled by Reuters predict that the UK’s inflation rate will hold at a three year high of 2.3% in March, with some analysts even predicting that further inflationary pressure could see it rise as high as 2.5%, although the drop in oil prices last month make such an event rather unlikely.

Markets are hopeful that a robust CPI reading will cause the Bank of England (BoE) to discuss the possibility of tightening monetary policy in order to keep inflation in check.

However there are concerns that the rapid rise in inflation will leaded to a notable drop in growth as the rise in prices prompts consumer spending to slide.

Howard Archer, chief UK and European economist at IHS Markit said;

‘Worrying for UK growth prospects, the fundamentals for consumers look odds-on to weaken markedly further over the coming months as rising inflation eats further into purchasing power with the squeeze reinforced by muted earnings growth.’

US Dollar Strengthened by Geopolitical Tensions

The US Dollar’s decline was slowed somewhat a rise in global uncertainty as Europe, the Middle East and Asia have all been marred by geopolitical tensions over the last week.

While the French election and Brexit remains a major concern for traders, markets were mostly spooked last week by the launching of another missile in North Korea and the US military action in Syria following a chemical attack on civilians.

With fears rising over risks to local markets, demand rose for ‘safe haven’ currencies such as the US Dollar and Japanese Yen.

Gao Qi, an foreign exchange strategist at Scotiabank in Singapore said;

‘The risks of a conflict have certainly grown and that should keep the dollar supported against most currencies, with hawkish comments from the U.S. central bank also helping.’

USD GBP Exchange Rate Forecast: UK Inflation Data Ahead

The USD GBP exchange rate is likely to tumble again on Tuesday if the UK’s inflation data performs as expected, although the Pound may cede ground if BoE Governor Mark Carney maintains his stance that the bank’s monetary policy should be left unchanged.

Meanwhile the US Dollar may rally later today if Federal Reserve Chair, Janet Yellen strikes a more hawkish tone in a speech this evening as markets speculate that the recent drop in the US Unemployment Rate could prompt the Fed to accelerate the pace of rate hikes this year.

Current Interbank Exchange Rates

At the time of writing the USD GBP exchange rate was trending around 0.80 and the GBP USD exchange rate was trending around 1.24.

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TAGS: Dollar Pound Forecasts