Higher UK Inflation Rates could Push GBP/USD Exchange Rate Up
The Pound (GBP) has advanced against the US Dollar (USD) today and could be on track for greater gains, depending on how traders respond to UK inflation rate data.
The source of today’s GBP/USD exchange rate rise has been UK unemployment rate data – the jobless rate has fallen from 4.2% to 4%, hitting its lowest level since 1975.
Looking ahead, Wednesday’s UK inflation rate figures are predicted to show a faster pace of price growth with a shift from 2.4% to 2.5% on the year in July.
A month-on-month slowdown has been forecast, but the Pound could still be supported by the more high-impact annual reading.
Higher inflation rates put more pressure on the Bank of England (BoE) to raise interest rates, so the GBP/USD exchange rate could rise on forecast-matching data.
It is worth mentioning that a Pound Sterling advance isn’t guaranteed on the news, however, as higher inflation would also risk a UK-wide wage squeeze.
This is where the pace of inflation exceeds the pace of wage growth, in effect diminishing the real incomes of UK households.
If GBP traders are more concerned about a possible hit to UK consumer spending activity, the Pound could be unmoved or even decline in value.
US Dollar to Pound Exchange Rate Forecast: Are USD/GBP Losses ahead on US Retail Sales Stats?
The latest US Dollar to Pound (USD/GBP) exchange rate dip could extend in the near-future, in the event that Wednesday’s US retail sales figures disappoint.
Out during the afternoon, these readings are expected to show a reduction in monthly and annual sales activity during July.
Although neither reading is tipped to show a contraction in the retail sector, such results could still unsettle US Dollar traders and trigger USD/GBP exchange rate losses.
A caveat to Wednesday’s US data releases are yearly manufacturing and industrial production figures, which are expected to show rising output during July.
While there may be US Dollar losses on the retail sales news, signs of increased US productivity could limit the extent of a USD/GBP exchange rate decline.
Future USD/GBP Forecast: Will Fed Minutes Boost US Dollar to Pound Trading?
Looking ahead to the coming week, the US Dollar (USD) could advance against the Pound (GBP) on Wednesday evening when Federal Reserve minutes are released.
Covering the Fed’s meeting at the beginning of August, these minutes could reveal US Dollar-boosting plans to hike US interest rates, potentially as soon as September.
There have been two rate hikes so far this year and USD traders are looking for two more before the end of 2018.
There are only three Fed meetings left this year, so the pressure is on for Federal Reserve officials to either signal planned rate hikes or commit to them before 2019.
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