GBP USD Reverses Losses Ahead of BoE Meeting

GBP USD Exchange Rate Breaks Above Key 1.37 Resistance Level

The pound rebounded off the 1.32 level on Tuesday morning following a sharp drop in value. A soft dollar was largely responsible for propelling it higher, as mounting uncertainty about the Omicron coronavirus variant supressed the market impact of robust UK jobs data.

The emergence of the Omicron variant has stoked fears of an economic slowdown, prompting investors to bet against a Bank of England (BoE) rate hike at its December meeting on Thursday.

The pound barely flinched when strong UK jobs data was published on Tuesday morning, which revealed that British employers hired a record number of staff last month – evidence that the UK labour market was resilient following the termination of the government’s furlough scheme.

British consumer prices shot up to an annual rate of 5.1% in November – the highest inflation reading since September 2011 – from 4.2% in October, official figures showed on Wednesday morning.

The consumer price index data exceeded economists forecast, who predicted that inflation would rise to 4.7%.

The BoE has said borrowing costs will almost certainly need to rise to curb inflation but is widely expected to hold off on a move this month due to uncertainty about the Omicron variant.

US producer prices exceed expectations in November

Despite taking a knock, the dollar was still being supported by its safe-haven status on Tuesday, as well as expectations that the Federal Reserve will be hawkish at its meeting of policymakers this week.

The US currency was perked up by data showing that producer prices exceeded expectations last month.

US producer prices rose in November amid ongoing supply constraints, triggering the biggest annual increase in 11 years. The surge in prices supports the outlook for inflated inflation for a prolonged period.

The producer price index (PPI) for final demand climbed by 0.8% in November after advancing 0.6% in October, Labour Department data showed on Tuesday. In the 12 months through to the end of November, the PPI jumped 9.6% – the biggest gain since November 2010.

Economists had predicted that the PPI would leap by 0.5% on a monthly basis and by 9.2% year-on-year.

Looking ahead

The big day has arrived for the dollar, as the Fed prepares to make its monthly policy announcement following the conclusion of its two-day December meeting – with the central bank poised to update on the pace at which it plans to taper its pandemic-era stimulus.

The outcome of the BoE’s monthly meeting of policymakers takes centre stage tomorrow; however, the central bank’s interest rate decision is unlikely to steal the show, with investors already pricing in a dovish tone.