After declining for the past five sessions, the pound pushed higher versus the US dollar on Tuesday. The pound US dollar exchange rate moved back above the key US$1.30 psychological level to reach a high of US$1.3033. The pair closed slightly off the high. The pound is advancing versus the US dollar in early trade on Wednesday.
The pound has been out of favour in recent sessions after Bank of England Governor Mark Carney hinted that the BoE is considering loosening monetary policy. The prospect of lower interest rates dragged the pound southwards. Fears of a rate cut were then fuelled further by weak GDP data which showed that the UK economy performed much worse than expected, contracting -0.3% in November.
Today the UK economic calendar will remain under the spotlight as investors look towards the release of inflation data, as measured by the consumer price index. Analysts are predicting that consumer prices remained steady in December increasing 0.2% month on month and 1.5% on an annual basis. Core inflation which excludes food and fuel is forecast to remain steady at 1.7% year on year. Both these readings would be below the BoE’s 2% target.
Speaking last week, Mark Carney labelled UK inflation as sluggish. Today’s CPI report is unlikely to prove otherwise. Weak economic growth and lacklustre inflation is the perfect recipe for easing monetary policy. A soft reading today could increase rate cut expectations and drag the pound lower.
Tariffs On Chinese Imports To Remain For Now
The US dollar traded broadly flat versus its peers on Tuesday, as investors digested disappointing inflation data and looked cautiously ahead to the signing of the US – China phase one trade deal.
US consumer price growth moderated at the end of last year, according to the latest data. US inflation increased 0.2% month on month in December, less than the 0.3% forecast. On an annual basis inflation increase 2.3%, up from 2.1% year on year in November.
Today attention will be firmly on trade as US and China are due to sign the trade deal that they agreed in December. However, news that the US will not remove tariffs on Chinese imports until after 2020 US elections as dented sentiment ahead of the signing.
|What do these figures mean?|
|When measuring the value of a pair of currencies, one set equals 1 unit and the other shows the current equivalent. As the market moves, the amount will vary from minute to minute.
For example, it could be written:
1 GBP = 1.28934 USD
Here, £1 is equivalent to approximately $1.29. This specifically measures the pound’s worth against the dollar. If the US dollar amount increases in this pairing, it’s positive for the pound.
Or, if you were looking at it the other way around:
1 USD = 0.77786 GBP
In this example, $1 is equivalent to approximately £0.78. This measures the US dollar’s worth versus the British pound. If the sterling number gets larger, it’s good news for the dollar.