Pound US Dollar (GBP/USD) Exchange Rate to Stumble on US CPI Release?
The Pound US Dollar (GBP/USD) exchange rate is trading on the back foot this morning as market brace for the latest US consumer price index.
At the time of writing, the Pound (GBP) is trading at $1.3814, struggling to consolidate on a lack of UK data.
US Dollar (USD) to Climb on Inflation Data and Tapering Expectations?
US Dollar (USD) Investors await today’s inflation release for trading impetus. The latest figure is expected to ease from 5.4% to 5.3%, although if the CPI overshoots expectations this could fuel hopes that the Federal Reserve will begin tapering bond purchases.
Analysts at Morgan Stanley have brought forward their tapering forecast to December 2021: despite Fed Chairman Jerome Powell insisting that most inflation seen so far is a temporary. Deutsche Bank remarks: ‘The breakdown will be very important so let’s see if any more of the transitory inflation filters into non-Covid related sectors.’
The Fed’s Charles Evans was also cautious in his tone yesterday, while other policy committee members made more hawkish comments. Fed officials Raphael Bostic and Tom Barkin agreed on Monday that inflation is already at a level that could satisfy one leg of a key test for the beginning of interest rate hikes.
So long as sentiment remains mixed amongst officials, USD investors will have to wait for concrete data before making any assumptions on the central bank’s monetary policy. Jobless claims and import/export data also have the potential to direct US Dollar movement later in the week.
Pound (GBP) Remains Subdued on Lack of Significant Data
Without any data on the horizon for today, the Pound is trending lower against the majority of its peers.
The main catalyst for movement will be tomorrow’s GDP release, which is forecast to print 4.8% growth in the second quarter of 2021. While Sterling faces pressure from other data, a strong lift in GDP could boost the Pound enough to inspire trading optimism.
Meanwhile, the Covid situation in the UK is mixed, with cases going down but deaths on the increase. The UK recorded 146 more coronavirus-related deaths in the latest 24-hour period, compared with 37 fatalities reported on Monday.
While coronavirus pressures weigh upon the Pound, tomorrow’s clutch of data has the potential to drive further movement. In addition to GDP, UK data will reveal industrial production figures and the balance of trade. Both are expected to contract on last month, inflicting possible downside pressure – although if expectations are exceeded they could lend tailwinds.