GBP to USD Forecast: Disappointing CPI Data Gives the Pound a Headache

GBP EUR Higher with UK Construction Figures

UK Inflation Dips to Three-Year Low

Yesterday’s Consumer Price Index (CPI) showed that British inflation dropped to its lowest level in nearly three years last month. The CPI rose by 1.5% year-on-year in October, down from 1.7% in September – a bigger fall than forecast and the lowest headline inflation since November 2016. Not only did this add to expectations that the Bank of England’s next move might be an interest rate cut; it added to the GBP vs USD rates woes, which edged slightly lower.

Any hopes of support from US CPI data were short-lived, after it was revealed that consumer prices increased more than expected in October – the dollar was static on the back of the reading. News that underlying inflation picked up – together with reduced trade tensions and fears of a recession – supports the Federal Reserve’s (Fed) intention to leave interest rates untouched in the near term.

With so much weighing on its shoulders, the pound was clinging to any signal that the Brexit deadlock can be broken early next year. Most notably, Nigel Farage’s announcement that the Brexit Party won’t contest seats won by the Tory Party in the last election; as well as a YouGov poll which gives Boris Johnson a 14-point lead over Jeremy Corbyn.

US Dollar Supported by Federal Reserve Chairmen

The dollar was given a leg up later in the day when Jerome Powell told Congress that inflation remains “muted” and the growth outlook is favourable. The Federal Reserve Chairman also stated the bank plans to keep its benchmark interest rate unchanged in the coming months, unless the economy stalls enough to cause policymakers to make a “material reassessment” of their outlook.

Looking ahead

Federal Reserve Chair Jerome Powell continues his testimony in front of Congress later today. Before that, the pound to US dollar pair will have one eye on UK Retail Sales figures. This is followed by a slew of data from the US – including the Producer Price Index and Initial Jobless Claims – and speeches by two Federal board members.

Another raft of economic data from the US tomorrow is dominated by Retail Sales Control Group figures – published by US Census Bureau, this represents the total industry sales that are used to prepare the estimates of personal consumption expenditures for most goods.

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