GBP USD Treads Water Ahead of US Inflation Data

GBP USD Exchange Rate: The Week Ahead November 15th

The pound briefly touched 1.36 against the dollar on Tuesday as it retraced its losses from last week, before slipping back to the 1.35 mid-range.

Despite the surprise decision by the Bank of England (BoE) on Thursday to leave interest rates on hold at a rock bottom 0.1%, speculation is rife that the central bank will hike rates either next month or early in 2022, which is providing short-term support for the UK currency.

BoE Governor Andrew Bailey fuelled rate speculation on Monday during a question-and-answer session when he said the central bank would intervene if higher inflation pushes up wages:

“What we’re concerned about…is once you start to get an increase in inflation of this sort, we want to stop it becoming generalised in the economy.”

“That’s why we would, and will, have to act on interest rates if we see that evidence becoming clear.”

Dollar firm ahead of US inflation data

The dollar was relatively subdued on Tuesday, with investors cautious ahead of highly anticipated US inflation data.

The US currency meandered after data showed US producer prices rose last month, indicating that high inflation could persist amid tight supply chains linked to the pandemic.

The US government’s producer price index – a gauge of final demand prices from goods producers – rose 0.6% in October, in line with economists forecast and a sign that inflationary pressures are continuing to hamper the domestic economy. The monthly pace was faster than the 0.5% increase in September.

However, investors refrained from making big moves ahead of the influential consumer price index due out today, with Federal Reserve officials watching the inflation data closely.

Investors took note of comments by Federal Reserve Chair Jerome Powell on Tuesday, who said inequality could prevent the US economy from reaching its potential:

“While monetary policy does not target any particular group of people, when we assess whether we are at maximum employment, we purposely look at a wide range of indicators, and we are attentive to disparities in the labour market, rather than just the headline numbers.”

Looking ahead

The closely watched consumer price index is released by the US Bureau of Labor Statistics today. Economists expect the government report to show consumer price inflation rose 5.8% in the 12 months through October, which would represent the fifth straight month of above 5% year-over-year price increases.

Investors will monitor a speech by BoE Monetary Policy Committee member Silvana Tenreyro today for further clues about the timeline for interest rate rises in the UK.

Investors in the pound must wait until tomorrow for the next influential data sets from the UK economy: Gross Domestic Product for the third quarter, and Industrial Production and Manufacturing Production – both for September.

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