GBP USD Takes a Nosedive

GBP USD Touches Lowest Level This Year

The pound slid to 1.34 against the dollar on Wednesday, having touched 1.36 the previous day. In the absence of data from the UK economy, the UK currency was on the defensive amid fresh Article 16 rhetoric.

Leo Varadkar issued a warning to British prime minister Boris Johnson as concerns mount in Dublin and Brussels of an imminent move to suspend parts of the agreement. Ireland’s deputy prime told the UK that it will not achieve a better deal if it triggers article 16 of the Northern Ireland protocol.

Speaking in Dublin on Wednesday morning, Mr Varadkar said: “The message I’d send to Boris Johnson is that we have an agreement in relation to Northern Ireland, we have an agreement in relation to trade with the European Union – don’t jeopardise it,”

“You were part of negotiating it, you own it, it was hard-won, it’s a mistake to think that by escalating tensions or by trying to withdraw from any part of it, that you’ll end up with a better deal: you won’t.”

His comments came in response to escalating tensions between the UK and EU over London’s intention to trigger the break clause in the protocol unless the EU concedes further on key issues.

The UK’s economic calendar finally sprang into life this morning. Top of the agenda was the latest gross domestic product (GDP) reading, which showed UK economic growth slowed to 1.3% in the third quarter.

The GBP USD rate nosedived towards the 1.33 level overnight ahead of the GDP publication.

US consumer prices rise at fastest pace since 1990

The dollar was stagnant on Wednesday ahead of an inflation test that could set the tone for the timing of a Federal Reserve interest rate rise.

US consumer prices accelerated at breakneck speed in October as supply chain disruptions mounted up and inflation heated up.

The consumer price index published by the Bureau of Labor Statistics on Wednesday increased 6.2% last month from a year ago – the fastest annual pace in three decades and a sharp rise from 5.4% in September. The figures came hot on the heels of data on Tuesday that showed US producer prices also increased solidly in October.

US government bond yields, which are particularly sensitive to changes in monetary policy, surged in response to the report, as expectations grew that the Federal Reserve may hike interest rates multiple times in 2022.

In a separate report on Wednesday, Labor Department figures showed initial claims for state unemployment benefits dropped 4,000 to a seasonally adjusted 267,000 for the week ended 6 November – the lowest level since mid-March 2020 when the economy was paralysed by mandatory business closures aimed at slowing the spread of Covid-19 infections.

Jobless claims have now declined for six consecutive weeks and are closing in on their pre-pandemic level.

Looking ahead

It’s a state and federal holiday in the US today.

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