Pound US Dollar Exchange Rate News: GBP/USD Strengthened ahead of US Inflation Reading

August 10, 2022 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Strengthened ahead of US Inflation Reading

US Dollar (USD) Quiet Ahead of Key Inflation Data

The US Dollar (USD) remains subdued ahead of annual CPI reading for the month of July. With future rate hikes from the Federal Reserve hinging on the readings, the US Dollar could see significant movement.

With inflation expected to ease from 9.1% to 8.7%, as fuel and energy prices have recently declined sharply. But more concerning is the ‘core’ inflation data, which excludes food and energy and is expected to rise to 6.1%, up from 5.9%. David Chao, a global market specialist at Invesco, said of the looming CPI data:

‘I don’t think that we are through the bear market woods yet – recession risks loom and I don’t think the Fed is done with its aggressive belt tightening.

‘I don’t think markets have fully discounted these variables. This week’s inflation data will certainly give us more clarity of the Fed’s near-term policy outlook.’

If the reading prints higher than expected, the ‘Greenback’ could skyrocket. Conversely, if CPI softens, the US Dollar could plummet on slashed hike rate bets.

Pound (GBP) Firmed Despite Burgeoning Energy Bills

The Pound (GBP) found relative strength against some of its rivals despite a lack of data and a worsening cost-of-living crisis. On top of the bleak economic outlook outlined by the Bank of England (BoE), the looming energy bill hike is weighing on the Pound.

As the UK prepares for an energy bill price hike of more than 80% in two months’ time, Uswitch have revealed that the UK’s energy debt is already at an all-time high. UK households owe energy suppliers £1.3Bn, three times higher than a year ago, and that figure is expected to increase through winter. Justina Miltienyte, Head of Policy at Uswitch, said of the report:

‘Energy debt has hit an all-time high with the worst possible timing, turning this winter’s energy price hike into a deeply precarious situation for many households.

‘This is an alarming situation, as summer is traditionally a time when households are using less power for heating, which helps bill payers to build up energy credit ahead of the winter.’

With the energy situation set to worsen over winter, numerous calls for the government to intervene and step-up support for UK households. However, frontrunner for the Conservative leadership Liz Truss, has refused to provide energy bill support and instead opted for tax cuts.

Martin Lewis, consumer rights campaigner and founder of moneysavingexpert.com, has said that the government must take stronger action now and cannot rely on tax cuts:

‘Tax cuts will not help the millions of the poorest in society who have to choose between heating and eating, because they are not paying tax. Tax cuts are not going to help the poorest pensioners, it’s not going to help those on universal credit.

‘This is a national crisis on the scale we saw in the pandemic. If it’s just tax cuts and the green levy, then we’re going to leave millions destitute and in danger this winter and that cannot happen in our country.’

Lending some moderate support to the Pound is the prospect of ministers visiting energy supply bosses as talks of heftier windfall taxes could help tackle the cost-of-living crisis. Chancellor of the Exchequer Nadhim Zahawi and Business Secretary Kwasi Kwarteng are to sit down with electric and gas executives.

As energy companies continue to enjoy record profits at the expense of the British public, an increased levy could go a long way in alleviating the cost-of-living crisis that is only set to worsen.

GBP/USD Exchange Rate Forecast: US Inflation to Buoy or Sink the Pound?

Looking ahead, all eyes will be on the release of US CPI data for the month of July. If inflation prints hotter than expected, expectations of future rate hikes could bolster the US Dollar.

Elsewhere, with data remaining thin on the ground this week for Sterling, market sentiment will continue to influence movement for the Pound. Ongoing political uncertainty compounding the economic outlook, Sterling could remain under pressure.

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