Pound to dollar rate falls lower after stronger US inflation data

GBPUSD Exchange Rate Volatility Following Trump’s Press Conference

The pound to dollar rate has slipped lower, with rates sitting below 1.2850 for the GBP/USD pairing. Much of the recent market movement has stemmed from dollar strength after US inflation data released this week arrived better than expected. US inflation arrived at 2.2% which as higher than the 2.1%, this has helped support the dollar in the view that the US Federal Reserve will still seek to raise interest rates throughout 2019.

Will there be another US Government shutdown?

The US dollar could see a bumpy ride in the days and weeks ahead as US President Donald Trump seeks to avoid another partial Government shutdown. A deadline of midnight this Friday now looms, and if an agreement on funding for the border wall is not passed through the House of Representatives and then through the senate, there could be another partial shutdown. A vote will be held tonight in the House of Representatives where it is hoped the bill will pass. These outcomes will play a big part for the direction of the pound to dollar rate.

Initial jobless claims and retail sales data are both released this afternoon and could give some indication as to whether there have been any negative effects from the last partial Government shutdown for January. To date, the economic data has actually been extremely positive despite the shutdown which has helped the dollar strengthen. The US non-farm payrolls figures at the beginning of the month were excellent which highlights the resilience of the US economy.

However the worry is that if there is a lag in the numbers from the last shutdown this could prove negative for the dollar, especially if another one materialises. With an election next year Trump will not want to see the healthy economy slide which has to date been working in his favour. Rates for GBP to USD may have further to fall on the back of another wave of strong US data.

The pound continues to face deep uncertainty whilst a deal on Brexit is still being negotiated between the UK and EU. A vote will be held later today in the British Parliament which will try and take the no deal option for Brexit off the table, and the outcome of this vote could be influential for what type of Brexit is eventually undertaken. More importantly there will be crucial meetings at the end of this month which may offer some compromise from either side on the controversial Irish backstop. Any breakthroughs would almost certainly be seen as positive for the pound, although it looks like there will be another few weeks of uncertainty whilst the markets try and second guess how this important change will take place.

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