Pound US Dollar Exchange Rate News: GBP/USD Edging Higher as UK Inflation Reaches 30-Year-High

February 16, 2022 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Edging Higher as UK Inflation Reaches 30-Year-High

GBP/USD Bolstered as UK Inflation Hits 30-Year-High

The Pound US Dollar (GBP/USD) exchange rate is trading higher today as UK inflation exceeded market forecasts.

At the time of writing, the GBP/USD exchange rate is trading at approximately $1.3567, roughly up 0.2% from today’s opening levels.

Pound (GBP) Boosted as UK Inflation Exceeds Expectations

The Pound (GBP) is rising against the US Dollar (USD) this morning as UK inflation for January climbs to 5.5%, beating expectations it would hold at 5.4%.

This is the highest reading since March 1992, with the largest contributions coming from the rising costs of housing and utilities and food, adding to the cost of living crisis. Rishi Sunak, Chancellor of the Exchequer, said that the UK government
‘understands the pressures’ that the British public are currently experiencing.

Furthermore, Sunak stated the government is distributing over £20 billion over the course of the next financial year, as well as ‘freezing’ duties on alcohol and fuel in a bid to keep prices down.

On the other hand, Sterling is drawing support as January’s bumper inflation print is likely to put even more pressure in the Bank of England (BoE) to maintain the current pace of interest rate hikes.

Paul Dales, Chief UK Economist at Capital Economics, comments:

‘The rise in CPI inflation in January from 5.4% to a new 30-year high of 5.5%, the latest rise in oil prices and the new item weights mean that we now think CPI inflation will rise to a peak of 7.9% in April (up from our previous forecast of 7.6%).

‘This will add more pressure on the Bank of England to raise interest rates rapidly. We think rates will rise from 0.50% now to 1.25% this year and to 2.00% next year.’

US Dollar (USD) Slipping as Investors Await US Retail Figures

The US Dollar (USD) is dropping against the Pound (GBP) this morning as US investors await the publication of January’s retail sales.

Sales growth is expected to rebound from -1.9% to 2% in January, which could bolster the ‘Greenback’ this afternoon.

In the meantime, the US Dollar is being undermined by an improving market mood, as the apparent withdrawal of Russian military units from the border with Ukraine is buoying hopes a war might be avoided.

However, geopolitical tensions haven’t completely cooled as US President, Joe Biden, warns a Russian invasion is ‘still very much a possibility’.

Although Russia continues to deny plans to attack Ukraine, US analysists have stated ‘that they remain very much in a threatening position’.

GBP/USD Exchange Rate Forecast: Will Hawkish FOMC Minutes Bolster the US Dollar?

Also influencing the Pound US Dollar exchange rate today will be the publication of the minutes from the Federal Open Market Committee’s (FOMC) January policy meeting.

USD investors will be paying close attention to the minutes as they seek to gauge the odds of the Federal Reserve delivering a half-percentage increase in interest rates next month.

Expect the US Dollar to jump if a hawkish tone helps to bolster expectations for an aggressive March rate hike.

On the other hand, the Pound may be bolstered at the end of the week by UK retail sales for January. The figures are forecast to increase from a 3.7% contraction to 1%.

In addition, the GBP/USD exchange rates is likely to remain sensitive to any developments between Russia and Ukraine.

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TAGS: Pound Dollar Forecasts