Pound US Dollar (GBP/USD) Exchange Rate Dips As US Inflation Soars
The Pound US Dollar (GBP/USD) exchange rate had climbed today before dropping back close to its opening figures following a higher than expected rise to US inflation.
At time of writing the GBP/USD exchange rate is at around $1.3528, virtually unchanged from this morning’s figures.
US Dollar (USD) Jumps as Inflation Hits Highest Point since Reagan Presidency
The US Dollar (USD) has leaped upward following figures showing inflation to have risen to its highest point since February 1982. The rate rose to 7.5% in January up from 7% in December as the soaring rate continues to harm household finances.
Food, energy, and housing were highlighted as the largest contributors to soaring consumer price inflation. Analysts are expecting inflation to slow as supply chain issues ease although the delayed impact of rising wages could keep inflation higher for longer.
The figures are also likely to boost expectations of a more aggressive series of interest rate hikes from the US Federal Reserve which in turn is likely to push USD higher. Fed Chair Jerome Powell previously signalled that a March rate hike was likely with markets now pricing in a 25% chance of a 0.5% increase.
Scott Ruesterholz, Portfolio Manager at Insight Investment New York, thinks that it is unlikely the Fed would act so aggressively however:
‘The Fed does not want to create undue volatility in its first hike, which only makes further increases more difficult.’
Pound (GBP) Edges Upward as Shoppers Return to Retail
The Pound (GBP) has made gains against many of its peers today, although robust US inflation figures mean that Sterling has lost ground against the safe-haven ‘Greenback’. Positive figures indicating a return to retail may have helped boost GBP but domestic political headwinds have likely weighed on the currency.
Data collected by the Office for National Statistics (ONS) this week showed that retail footfall had risen 3% from the previous week, the fourth weekly increase in a row. The figures may help boost Sterling as the sector continues to recover following the Omicron wave.
Prime Minister Boris Johnson has seen further condemnation over the ‘patygate’ scandal today which may harm confidence in Sterling. In a speech to the Institute of Government thinktank, Major stated that Johnson should resign if he had broken the law.
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