Pound Maintains Steady Upward Trajectory
The pound continued to benefit from signs of a post-election economic recovery and news of a sizeable increase in government spending for much of yesterday. This combined with the announcement that the High Speed 2 rail project – designed to link London, Birmingham, Manchester and Leeds – would go ahead, nudged the GBP to USD rate further towards the 1.30 level.
In the absence of any notable UK data, there was little to check the pair’s stride yesterday, other than persistent dollar strength. Even lingering political jitters surrounding the Brexit transition period couldn’t hold it back until later in the day when it began to plateau.
Central Bank Chief Believes Low Inflation Creates New Challenges for Fed
US Federal Reserve Chairman Jerome Powell returned to Capitol Hill on Wednesday for a second day of testimony. This time the central bank leader addressed the Senate Banking Committee, a day after speaking to the House Committee around financial services.
Mr Powell told lawmakers that the central bank wanted to update its policy-setting strategy to address an economic environment in which falling inflation could become a more pressing than rising inflation. Lower inflation and lower interest rates “creates a very challenging environment for us to carry out the job you’ve given us” Mr Powell told the Committee. His comments came just twenty-four hours before today’s US Consumer Price Index (CPI); a measure of price movements by comparing the retail prices of a representative shopping basket of goods and services.
Today’s US monthly CPI rate is expected to be unchanged, adding 0.2% in January as it did in December. Annual inflation is forecast to climb slightly to 2.4% from 2.3% in December. While core inflation is projected to rise 0.2% in January following December’s 0.1% gain. If inflation figures match economists’ predictions, the GBP vs USD rate could come under pressure from dollar strength.
The coronavirus outbreak – now a global health crisis – has seen investors pile funds into resilient investments, including the dollar. Positive sentiment towards the US economy and expectations that the virus will have little impact in the US, means this trend looks likely to continue until the outbreak is brought under control.
A quiet end to the week in the UK economic data calendar means investors in the pound will be listening out for any developments in the Brexit process.
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