GBP/USD Exchange Rate Tumbles as US Dollar finds it Feet

January 29, 2018 - Written by John Cameron

STORY LINK GBP/USD Exchange Rate Tumbles as US Dollar finds it Feet

The Pound US Dollar (GBP/USD) exchange rate is sliding today as the ‘Greenback’ mounts a recovery

US Dollar’s (USD) Gains Strengthened by Lift in Inflation

The US Dollar was able to reverse some of its recent losses against the Pound today as the US currency snapped back after a heavy week of losses.

USD has been under considerable pressure since the start of the new year, with GBP/USD having surged around 7% in the last month.

However the US Dollar appears to be on sturdier footing at the start of this week’s session as recent concerns over a possible trade war abate and markets rush to cash in on the weakness of the currency.

Helping prevent the US Dollar from quickly slipping back again as sentiment wavered however, was the release of the latest US personal consumption expenditures (PCE) price index.

The core index reading showed that inflation rose from 0.1% to 0.2% in December in line with expectations.

With this being the preferred inflation reading for the Federal Reserve the uptick reflected well on the US Dollar, with markets hoping it will prompt the Fed into maintaining its hawkish outlook for three rate hikes this year.

There has been considerable speculation in recent weeks over whether the Fed will choose to slow the pace of monetary tightening this year given that inflation has remained stubbornly low.

Pound (GBP) Slides as Political Concerns Return

Meanwhile Sterling is beating a hasty retreat today as a lull in economic data places Theresa May’s precarious position within her own party in the spotlight once again.

Connor Campbell, financial analyst at Spreadex, said;

‘With little else to focus on investors turned their attention to Theresa May’s most recent bout of Tory turbulence, much to the pound’s displeasure.’

‘The Prime Minister is dealing with the umpteenth swell of dissent over the state of her leadership, while at the same time having to try and quash the latest beef between her warring ministers, this round sparked by leaked Whatsapp messages from climate change minister Claire Perry calling Brexit voters ‘swivel-eyed’.’

This is just the latest in a long-line of potential challenges against the Prime Minister as her party becomes increasing divided on how Brexit should be handled.

On one side she has the Brexiteers how complain that then UK is currently on course for a ‘diluted’ Brexit, which will leave the UK in the EU ‘in all but name’.

On the other side she has those who want to a see a Brexit which leaves the UK closely aligned with the EU particularly in terms of trade, but believe that the PM will end up splitting away from the EU without a deal.

On top of this the House of Lords is set to vote on the government’s EU withdrawal bill tomorrow, where it is unlikely to find a great deal of support.

Campbell adds;

‘Add onto that the Lords constitution committee labelling the EU withdrawal bill as ‘fundamentally flawed’ just one day before the legislation is set to be debated, alongside a warning from EU leaders that the UK is ‘not ready’ to secure a divorce deal, and there was plenty for the previously soaring pound to fret about.’

GBP/USD Exchange Rate Forecast: Fed to Maintain Pace of Monetary Tightening in 2018?

Looking ahead the most impactful event for the GBP/USD exchange rate this week is likely to be the Federal Reserve’s latest rate decision on Wednesday.

This will be the bank’s first policy meeting of the year and while it is not expected to make any alterations to monetary policy this early markets will be looking for any hints on what 2018 may hold for interest rates.

Meanwhile the Pound may find itself tumbling first thing on Tuesday with the release of Nationwide’s latest UK house price index, with economists forecasting that price growth will have slowed from 0.6% to 0.2% in January.

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TAGS: Pound Dollar Forecasts