Pound to US Dollar Exchange Rate Hits Worst Levels since September on Low UK Inflation
Bearish news continued to pile up on the Pound (GBP) on Wednesday, as now the latest UK inflation results have knocked the Pound Sterling to US Dollar (GBP/USD) exchange rate lower. Unless the Brexit outlook changes, investors are unlikely to buy GBP/USD much higher.
After seeing relatively range-bound trade for much of July so far, could GBP/USD be in for a week of losses? GBP/USD opened this week at the level of 1.3234 and at the time of writing on Wednesday had slumped to a low of 1.3024.
This was the worst GBP/USD level in 10 months, since September 2017, as Brexit uncertainties and concerns about Britain’s economic outlook led to a Pound selloff.
As Brexit jitters have already caused more uncertainties about Britain’s economic outlook, the latest underwhelming UK inflation results made investors even more concerned about the nation’s economic strength.
Pound (GBP) Exchange Rates Slump as UK Inflation Unexpectedly Slows
Britain’s key Consumer Price Index (CPI) inflation rate has been expected to modestly improve year-on-year, and slow slightly month-on-month.
However, the latest results showed unexpected slowdowns in inflation in almost every print.
The month-on-month inflation results slowed from 0.4% to 0.0%, rather than just the expected 0.2%. The yearly figure was forecast to have risen to 2.6%, but unexpectedly remained at 2.4%.
The core inflation rate was perhaps the most concerning print of all, as it was expected to rise to 2.2% year-on-year but instead slowed from 2.1% to 1.9%.
It indicated that Britain’s underlying price pressures were more subdued than economists had expected, and some analysts speculated that the Bank of England (BoE) may even hold off on hiking interest rates during its August policy decision.
The inflation report followed the latest Brexit uncertainties, as UK Prime Minister Theresa May’s soft-ish Brexit plan saw opposition from both hard Brexit and soft Brexit supporters within the Conservative Party.
For now, the Pound outlook is gloomy as political concerns and economic uncertainties weigh heavily.
US Dollar (USD) Exchange Rates Sturdy as Fed Chairman Maintains Hawkishness
Despite concerns that protectionist trade rhetoric from US President Donald Trump and the US-China trade war could damage the US economy, Federal Reserve Chairman Jerome Powell maintained an optimistic tone during his testimony on Tuesday.
Powell testified to US Congress about the health of the US economy and appeared confident that the economy would remain strong for some time to come.
He played up the strength of the US job market, and noted that the latest price pressures data was generally encouraging.
This reassured investors, following concerns that recent US inflation data had fallen short of forecasts.
On top of this, Powell indicated he did not believe the US-China trade war would have a significant impact on US monetary policy.
As a result, much of the recent uncertainty in US Dollar (USD) movement was lightened and the currency was able to more easily climb against the Pound.
Pound to US Dollar (GBP/USD) Forecast: UK Retail Sales and Fed Speculation in Focus
Thanks to the optimistic tone taken by Federal Reserve Jerome Powell in his testimony to US Congress, investors are now more confident that the Federal Reserve’s monetary policy plans will not be heavily influenced by the US-China trade war.
However, more Fed comments, including another testimony from Powell on Wednesday afternoon and a speech from Fed official Randal Quarles on Thursday could drive further US Dollar movement.
Overall though, the US Dollar outlook is relatively bullish in the mid to long-term unless there are signs of US data coming in well below expectations, or signs that the US economy could take a bigger hit than expected from US trade protectionism.
In comparison, the Pound outlook is relatively bearish and unless Brexit jitters cool or Bank of England (BoE) interest rate hikes rise again investors may have little reason to buy the British currency.
On Thursday, Britain’s June retail sales results will be published, and are unlikely to have a huge impact on the Pound’s fortunes.
However, if the data comes in well above expectations it could improve the UK economic outlook slightly and support a potential Pound to US Dollar (GBP/USD) exchange rate recovery.
Comments are closed.