GBP/USD Exchange Rate Sinks on Rising US Inflation Data
The Pound US Dollar (GBP/USD) exchange rate dipped today after the latest US inflation figure jumped to its highest rate since 2008. The pairing is currently fluctuating around US$1.41.
The US Dollar (USD) edged higher despite the Federal Reserve already stating that it would not raise interest rates even if inflation rises above targets.
Michael Pearce, an analyst at Capital Economics, commented on the figure:
‘We now expect headline inflation to peak at close to 5% over the coming months and remain above 4% for most of the year, while core inflation will hit 3.5%, and average 2.7% over 2021. With employment still more than 8 million short of its pre-pandemic level, however, we expect the Fed to maintain its dovish line, even as inflation gains broaden out over the coming months.’
However, demand for the safe-haven US Dollar is being compromised by the European Commission’s (EC) upgrade of its growth forecasts for the Eurozone economy.
The US Dollar is negatively-correlated to the single currency, so growing signs of an improvement in the outlook for the Eurozone’s economy tends to be USD-negative.
Pound (GBP) Exchange Rates Struggle Despite Rebound in UK Growth in March
The Pound (GBP) struggled against the ‘Greenback’ today after the UK was reported to have rebounded in March. The latest GDP figure revealed that the economy rose by 2.1% in March but dropped by 1.5% in the first quarter of this year.
UK Chancellor Rishi Sunak was upbeat about the data, however, saying:
‘Despite a difficult start to this year, economic growth in March is a promising sign of things to come. As we cautiously reopen the economy, I will continue to take all the steps necessary to support our recovery.’
As a result, GBP has benefited from growing optimism in the outlook for the UK economy, with the nation’s GDP beating expectations for the first quarter.
Today also saw the latest UK industrial production and manufacturing production figures, which both beat forecasts, rising in March.
Now that UK lockdown measures will ease on 17 May – as reiterated by Prime Minister Boris Johnson earlier this week – Pound investors are becoming more optimistic about the nation’s economic recovery.
GBP/USD Exchange Rate Forecast: Could Positive UK Economic Morale Boost the Pound This Week?
Pound (GBP) traders will await tomorrow’s speech from the Bank of England’s (BoE) Governor Andrew Bailey.
If Bailey is notably upbeat about the outlook for the UK economy, then the Pound US Dollar exchange rate would head higher.
In US economic news, tomorrow will see the release of the latest US initial jobless claims for May.
Any signs of improvement in the US economy could limit demand for the ‘Greenback’ as risk sentiment would also improve.
The Pound US Dollar (GBP/USD) exchange rate could climb higher this week, however, if the outlook for the UK economy continues to improve.