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Pound US Dollar Exchange Rate News: GBP/USD Rangebound as UK Inflation Soars

April 13, 2022 - Written by John Cameron

GBP/USD Rangebound as UK CPI Surges

The Pound US Dollar (GBP/USD) exchange rate is trading in a narrow range today as the UK’s consumer price index soars to a 30-year high.

At the time of writing, the GBP/USD exchange rate is trading at approximately $1.3002, with minimal movement from today’s opening levels.

Pound (GBP) Subdued as High UK Inflation Exacerbates Cost of Living Crisis

The Pound (GBP) is directionless against the US Dollar (USD) after the UK’s CPI reading overshot market forecasts.

In March, inflation printed at 7%, exceeding both the previous reading of 6.2% and the expected 6.7%.

This is the highest UK inflation reading since 1992 and is squeezing household incomes, further exacerbating the UK’s cost of living crisis.

The largest contributor to high inflation was petrol costs and motor fuels, with the cost of transport responsible for 13.4%.

According to the Office for National Statistics:

‘Crude oil and gas prices continue to rise, driven in part by global geopolitical tensions, including the conflict in Ukraine and trade restrictions with Russia.

‘These rises are passing through to factory gate prices for heavy industry, such as the manufacture of metal products, reflecting the importance of oil and fuel in their input costs.’

UK Chancellor of the Exchequer, Rishi Sunak, has warned the Ukraine crisis may stoke additional inflationary pressures and recognises ‘this is a worrying time for many families’.

In attempt to support the British public, Sunak has reiterated the £22bn made available at last month’s spring statement as well as the government’s target to help ‘as many people as possible into work’.

Meanwhile, Russia’s invasion of Ukraine continues to hinder demand for Sterling as GBP investors remain wary of geopolitical developments.

US Dollar (USD) Muted as Risk-On Mood Prevails

The US Dollar is mixed against the Pound (GBP) this morning as a risk-on mood is hindering demand for the safe haven.

Furthermore, the US Treasury bond yields fell on Tuesday following the latest US CPI reading. Core US inflation in March rose from 6.4% to 6.5%, slightly down from the predicted 6.6%.

However this reinforced Federal Reserve rate hike bets, limiting USD losses.

A hawkish speech from Fed policymaker, Lael Brainard, underpinned this sentiment stating the Fed is likely to raise rates ‘expeditiously’ and ‘could be as soon as May’.

Greg McBride, chief financial analyst at Bankrate, said:

‘The ugly trend of inflation is why the Federal Reserve is poised to hike interest rates by a half percentage point in May and begin letting their bond portfolio run off.

‘The Fed will be pressing firmly on the brake pedal – not just pumping the brakes – in an effort to slow demand and bring the inflation rate back down.’

GBP/USD Exchange Rate Forecast: Will the Ukraine Crisis Continue Dominating Trade Sentiment?

Looking ahead, Russia’s invasion of Ukraine is likely to remain as the key driving force of the Pound US Dollar exchange rate.

Due to an absence of UK economic data for the rest of this week, geopolitical uncertainty is likely to influence the appeal of the Pound: if the Ukraine crisis remains unsolved, it may steer investors away from the risk-sensitive GBP for the near-term.

Meanwhile, the ‘Greenback’ may be impacted by a variety of data releases throughout the rest of this week’s session.

Later today, the US producer price inflation for March is expected to rise from 0.8% to 1.1%, potentially further bolstering Fed rate hike bets.

US retail sales for March are expected to increase from 0.3% to 0.6%. Should this print true, it may boost demand for the US Dollar.

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