Pound to Dollar Rate Supported by UK GDP Data

GBP USD Exchange Rate: The Week Ahead July 25th 

The pound vs dollar rate remained choppy on Wednesday morning as it continued to meander its way between the 1.35 and 1.36 levels, before embarking on a move higher. Providing it with upward momentum was gross domestic product (GDP) data showing the British economy grew slightly in August below consensus. Having digested the numbers, investors concluded that the Bank of England (BoE) won’t be deterred from hiking interest rates this year. The BoE, which is contending with a rise in inflation, is expected to be the first major central bank to raise rates since the beginning of the pandemic.

The British economy expanded by 0.4% in August, leaving it just 0.8% smaller than in February 2020, before it felt the full force of the Covid-19 pandemic, Office for National Statistics data showed on Wednesday. Economists had forecast monthly GDP growth of 0.5% for the month.

Fed could begin stimulus tapering by mid-November

The dollar was also supported by economic indicators on Wednesday. US inflation data showed price rises were robust last month, fuelling expectations the Federal Reserve will announce a tapering of fiscal stimulus following its November meeting of monetary policymakers – with rate hikes forecast by mid-2022.

The Consumer Price Index (CPI) increased 0.4% in September, exceeding the 0.3% rise expected by economists. In the 12 months through September, the CPI edged up to 5.4%, from a 5.3% year-on-year advance in August. Excluding the volatile food and energy components, core CPI rose 0.2% in September, from 0.1% in August.

The Fed released the minutes from its September meeting on Wednesday evening, which signalled that central bank officials could begin tapering the significant financial stimulus they’ve been providing to the economy as soon as mid-November. The meeting summary indicated members of the Federal Open Market Committee – which is charged under United States law with overseeing the nation’s open market operations – feel the Fed is close to reaching its economic targets and could begin normalising monetary policy by reducing the pace of its monthly asset purchases.

The meeting summary noted: “participants generally assessed that, provided that the economic recovery remained broadly on track, a gradual tapering process that concluded around the middle of next year would likely be appropriate.”

“Participants noted that if a decision to begin tapering purchases occurred at the next meeting, the process of tapering could commence with the monthly purchase calendars beginning in either mid-November or mid-December,”

By this morning, the pound vs dollar rate had climbed higher into 1.36 territory.

Looking ahead

The Producer Price Index (excluding food and energy) and Initial Jobless Claims for the week ended 8 October are released from the US economy today.