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Pound US Dollar (GBP/USD) Exchange Rate Subdued as UK Inflation Disappoints Forecast

November 13, 2019 - Written by Frank Davies

Disappointing UK Inflation Sees Pound Sterling US Dollar (GBP/USD) Exchange Rate Struggle

A weaker-than-expected UK consumer price index kept the Pound Sterling to US Dollar (GBP/USD) exchange rate on a softer footing on Wednesday.

While forecasts had pointed towards an easing in the headline inflation rate investors were still disappointed to find that it had dipped from 1.7% to 1.5%.

With inflation falling further below the Bank of England’s (BoE) 2% target the odds of a 2020 interest rate cut continued to rise, to the detriment of GBP exchange rates.

As markets expect to see inflationary pressure diminish further in the coming months there appeared little reason to favour the Pound at this stage.

US Consumer Price Index Increase Fails to Encourage US Dollar (USD) Exchange Rates

Although the US consumer price index proved stronger than anticipated this was not enough to give the US Dollar any significant boost, however.

As the CPI is not the Federal Reserve’s preferred measure of inflation the uptick to 1.8% is unlikely to provoke any particular shift in policymaker opinion.

Positive commentary from Fed Chair Jerome Powell also offered limited support to USD exchange rates, with markets still wary of the potential for interest rates to see further cuts.

In the wake of the Reserve Bank of New Zealand’s (RBNZ) surprise decision to leave interest rates on hold a general improvement in market risk appetite also limited the strength of the safe-haven US Dollar.

UK Retail Sales Uptick Forecast to Shore up GBP/USD Exchange Rate

The GBP/USD exchange rate could find a rallying point on Thursday, though, if October’s UK retail sales data improves as forecast.

A fresh acceleration in retail sales would suggest that consumers are largely shrugging off the uncertainty surrounding the upcoming general election and Brexit.

As higher levels of consumer spending could help to offset the negative impact of weakening manufacturing sector activity a strong showing here may give GBP exchange rates a solid boost.

On the other hand, any softening in consumer demand on the month may offer BoE policymakers fresh cause for dovishness.

Escalating Global Trade Worries May Dent US Dollar Demand

Increasing anxiety over the prospect of a fresh deterioration in US-China trade relations could see the US Dollar return to a stronger footing in the days ahead.

Any significant uptick in market risk aversion is likely to benefit USD exchange rates, especially if the Trump administration appears on course to impose fresh tariffs on Chinese exports.

The mood towards the US Dollar may also improve on the back of October’s US retail sales data, with forecasts pointing towards a solid 0.2% rebound on the month.

Evidence that confidence within the world’s largest economy is making some recovery would reduce the risk of a weaker fourth quarter growth rate, lifting USD exchange rates higher.
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