The Pound to US Dollar (GBP/USD) exchange rate has been able to claw back losses and attain a two-week high following the release of US inflation numbers in Wednesday’s European trading. The US Dollar to Japanese Yen (USD/JPY) exchange rate even hit a 15-month low.
The US Dollar has been on the back foot following higher-than-forecast inflation readings. Consumer prices came in at 2.1% in January while economists had expected a decline to 1.9%. The reading sparked fears that the US Federal Reserve may need to enter a quicker-than-forecast rate hike cycle which could be rather aggressive.
Societe Generale representative Kit Juckes commented:
‘A slightly higher-than-expected US CPI print was enough to get 10-year bond yields up to 2.92%, while equity and commodity prices both rallied sharply and the Vix [volatility index] fell back under 20. The Dollar, on the other hand, got absolutely no support from any of this.
‘A reminder if we needed that the better the global economic story, the worse it is for the Dollar. The biggest single factor undermining the Dollar this year has been the improvement in the global economy – a more balanced economic recovery drags investment away from the US and towards more interesting markets.’
Meanwhile, the Royal Bank of Canada (RBC) suggests that the Pound also has some support from Theresa May’s position becoming seemingly more stable. However, the bank suggested that if May were to lose her position at the helm and be replaced by Jacob Rees-Mogg, the Pound could fall. Rees-Mogg has been a prominent Brexiteer who’s gained more of the spotlight after suggesting that the UK shouldn’t have a soft Brexit.
The RBC said:
‘…We also note that arch-Eurosceptic Rees-Mogg is now priced as most likely PM after May (ahead of Corbyn) and his hard Brexit line is probably less constructive for the currency.’
The Pound to US Dollar (GBP/USD) exchange rate is trending in the region of 1.4066.