Pound US Dollar Exchange Rate Trends Sideways after Surprise US PPI Fall

August 11, 2022 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate Trends Sideways after Surprise US PPI Fall

Pound US Dollar (GBP/USD) Exchange Rate Climbs Rangebound amid Risk-Off Mood

The Pound US Dollar (GBP/USD) exchange traded within a narrow range on Thursday after a fall to US PPI figures. The data extended the US Dollar’s (USD) sell-off which helped the currency pair to climb. Additionally, a risk-on market mood helped to bolster GBP/USD.

On the other hand, significant gains for the exchange rate were likely limited by a downbeat assessment for the UK economy as well as soaring energy costs. Sustained Federal Reserve rate hike bets may have also underpinned the currency pair.

At time of writing the GBP/USD exchange rate was at around $1.2223, virtually unchanged from this morning’s figures.

US Dollar (USD) Slumps after Surprise PPI Fall

The US Dollar (USD) slipped against its peers on Thursday. The currency saw increased pressure after July’s PPI fell unexpectedly, indicating a further easing on inflationary pressures. Additionally, a risk-on market mood likely pulled the safe-haven ‘Greenback’ lower.

The producer price index fell by -0.5% last month, its first fall in two years, and represented the recent drop in energy costs in the US. The data added weight to speculation that inflation in the US may be cooling.

The figures likely saw investors pare back bets on more aggressive interest hikes from the Federal Reserve, prompting further losses for USD. The fall to PPI came after Wednesday above-forecast fall to inflation.

A rise to jobless claims on Thursday may have also caused the currency to slide. Jobless claims rose by 14,000 to reach 262,000 for the week ending August 6. The figures indicated a softening in the US labour market.

Despite the recent data, economists still feel that Fed will push ahead with interest rate hikes. Multiple Fed policymakers signalled that they would support a hawkish forward policy from the central bank. This may have helped to prevent significant losses for USD on Thursday.

Speaking on Wednesday, Fed policymaker Charles Evans stated that ‘that we will be increasing rates the rest of this year and into next year to make sure inflation gets back to our 2% objective.’

Pound (GBP) Slips Against Many Rivals amid Downbeat UK Outlook

The Pound (GBP) fell against its rivals on Thursday. A downbeat outlook for the UK economy as well as a worsening cost-of-living crisis likely saw Sterling lose ground.

The impact of soaring energy bills continued to dent household spending power, as well as potential future growth for the UK economy. Fresh forecasts from Cornwall Insights earlier in the week indicated that annual energy bills could climb above £4200 in January.

Political uncertainty in the UK likely added to concerns over the government’s response to the crisis, potentially weighing on the Pound. UK ministers met with energy company heads on Thursday but failed to generate any significant concrete measures.

The soaring costs may have also added extra weight to the Bank of England’s (BoE) gloomy forecasts last week. The BoE predicted that inflation will surpass 13% and push the UK into a recession before the end of 2022.

On the other hand, Sterling may have seen support amid renewed BoE rate hike bets. Markets likely picked up on hawkish comments from Deputy Governor Dave Ramsden earlier in the week.

GBP/USD Exchange Rate Forecast: Will UK GDP Fall Prompt Renewed Recession Fears?

Looking ahead to the rest of the week for the Pound, Friday’s GDP figures could cause losses for the currency if they print as forecast. The UK’s economy is expected to have contracted in June with a severe drop to GDP growth in the second quarter.

The figures could also keep pressure on Sterling if they cause investors to give extra weight to the BoE’s predictions of a 2022 recession.

For the US Dollar, a forecast uptick in August’s consumer sentiment could help USD to recover if the preliminary reading prints as expected on Friday.

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