GBP USD Rate Breaks Through 1.38 Barrier

GBP USD Exchange Rate: The Week Ahead November 08th

The pound continued to build up a head of steam against the dollar on Tuesday morning, breaking through the 1.38 resistance level for the first time in over a month.

The GBP USD rate, which was already benefitting from tailwinds created by Bank of England (BoE) rate hike expectations, was boosted further by data-fuelled dollar weakness.

On Monday, figures published by the Board of Governors of the Federal Reserve showed that industrial production declined by 1.3% month-over-month in September – falling well short of analysts’ forecast that it would grow by 0.2% and indicating that the domestic economy may be slowing.

On Tuesday, data showed that US homebuilding unexpectedly declined last month amid ongoing shortages of inputs and labour.

Housing starts fell 1.6% to a seasonally adjusted annual rate of 1.555 million units in September, the Commerce Department said. Data for August was revised down to a rate of 1.580 million units from 1.615 million units.

Economists had forecast starts would rise to a rate of 1.620 million units.

Permits for future homebuilding also declined last month, dropping 7.7% to a rate of 1.589 million units.

The underwhelming data is a spanner in the works for Fed officials who may decide to keep their current asset purchase programme intact in November amid a stalling economy – any further delay to tapering could weigh on the dollar.

A rapid rise in US Treasury yields also tripped up the dollar on Tuesday. Yields appeared to stabilise following last week’s surge.

UK inflation declines unexpectedly

Figures from the Office for National Statistics on Wednesday morning showed British inflation slowed unexpectedly in September.

Consumer prices increased 3.1% in annual terms last month, easing from 3.2% in August. Economists had forecast inflation to remain steady at 3.2% in September.

The drop in consumer prices probably marked a temporary respite for the public, with the BoE expecting inflation to rise slightly above 4% in the fourth quarter – and the central bank has signalled that it is prepared to address this acceleration by raising interest rates, possibly in two weeks.

On Sunday, BoE Governor Andrew Bailey stressed the need to control inflation – reinforcing expectations that the BoE is gearing up to be the first of the world’s biggest central banks to raise interest rates since the onset of the coronavirus crisis.

The GBP USD began to decline in value following the inflation release.

Looking ahead

Two influential data sets are published in the US on Thursday: the Philadelphia Fed Manufacturing Survey and Initial Jobless Claims for the week ended 15 October.

Overnight on Wednesday, the GfK Group Consumer Confidence Index is slated for release in the UK.