Limited Slump in US Inflation Fails to Boost ‘Greenback’ (USD) as Odds of Imminent Fed Hike Continue to Recede
Although the US Consumer Price Index printed at a higher level than expected on Thursday, declining to 0% rather than -0.1%, the ‘Greenback’ (USD) still experienced some softening against rivals. Bets still point towards the first Fed interest rate hike not coming before the end of the year as domestic inflation pressures clearly continued to be relatively weak. Consequently the GBP/USD exchange rate is on a minor uptrend this morning, in the range of 1.5477.
Earlier…
After US Advance Retail Sales were shown to have declined in September the GBP/USD exchange rate made strong gains, extending its advances this morning.
Lowest UK Unemployment in Seven Years Boosted Pound (GBP) and Encouraged Bank of England (BoE) Rate Rise Bets
Wednesday’s raft of UK employment data proved generally supportive for the Pound (GBP), rescuing the currency from the slump prompted by the previous day’s negative inflation reading. While the Jobless Claims Change figure was weaker than expected, showing a rise of 4,600 people on unemployment benefit, this was counteracted by the unexpected decrease of the ILO Unemployment Rate. In the three months through August unemployment fell to its lowest level in seven years, at 5.4%, and coupled with continued growth of Average Weekly Earnings prompted traders to speculate that the Bank of England (BoE) could begin tightening monetary policy sooner rather than later. This hawkish data saw the GBP/USD exchange rate surge throughout trading to strike a weekly best of 1.5488.
Softening US Advance Retail Sales Further Undermined the Strength of the ‘Greenback’ (USD) to Benefit of GBP/USD Pairing
The ‘Greenback’ (USD), meanwhile, was substantially weakened by the release of the latest US Advance Retail Sales figure. Falling short of forecasts the September reading printed at a disappointing 0.1% as the previous month’s figure was revised downwards to 0%, indicating that domestic consumer demand is slower than had been thought. This boded ill for the world’s largest economy amidst increasing slowdown fears, lending weight to suggestions that the Fed would not be moving to raise interest rates before the end of 2015 and prompting the US Dollar to soften further. Later that evening the publication of the Fed’s Beige Book also discouraged traders hoping for a more imminent take-off, limiting the appeal of the ‘Buck’ in spite of recent risk aversion within the markets.
GBP/USD Exchange Rate Forecast: US Dollar could Decline with Negative Printing on US Inflation Measure
This afternoon could see another dovish blow delivered to the ‘Greenback’ with the upcoming US Consumer Price Index reading for September. Forecast to print negatively, falling from 0.2% to -0.1%, this figure may exacerbate slowdown concerns and potentially spark fresh deflation fears. A more optimistic result, however, could buoy the ailing currency in spite of dwindling prospects of a near-term interest rate increase from the Fed.
As there is no fresh UK data due for release ahead of the weekend the Pound is likely to maintain its present trend, with the GBP/USD pairing to be primarily driven by any US Dollar volatility.
Current GBP, USD Exchange Rates
At time of writing, the Pound Sterling to US Dollar (GBP/USD) exchange rate was trending in the region of 1.5488, while the US Dollar to Pound Sterling (USD/GBP) narrowly declined around 0.6457.
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