The British pound is lower against the US dollar on Wednesday with King Dollar higher across the board as evidence grows that the US economy is increasingly an island of strength in a sea of weaker global economic performance.
GBP/USD was lower by 31 pips (+0.20%) at 1.3027 with a daily price range of 1.297 to 1.305 as of 2.30pm GMT. The currency pair slid back to the 1.30 handle again, taking weekly losses to -0.70%.
The pound
Higher UK inflation statistics in January had a fleetingly positive effect on Sterling before the British currency rolled over again, buckling under a strengthening US dollar. Consumer Price Inflation (CPI) rose to 1.8% year-over-year exceeding expectations of a 1.6% rise and well up from the 1.3% expected.
In ordinary circumstances, a central bank should react to rising inflation by raising interest rates. But a decade of rock bottom interest rates is not ordinary circumstances and bets in the market for a BOE rate hike remain close to zero. There is some justification for keeping a lid on bullish expectations for the pound after this inflation data. Higher inflation when wage growth is tailing off can put a squeeze on household disposable income, limiting consumption, which happens to make up around 70% of the UK economy.
The dollar
The dollar reversed its fortunes to turn higher in afternoon trading following some impressive data on the housing market that support the idea of a robust US economy. US housing permits are often used as a proxy for future home construction and data on Wednesday showed them ring at the fastest pace since 2007.
Investors have an up-to-date assessment of the US economy from last week’s testimony of Fed Chair Jay Powell so on that front the FOMC minutes could be rather stale. More detail on the risks the coronavirus poses to the US economy will garner attention, but central bankers seem as perplexed as others about the way it could shape out. The policy review and possible changes made to the 2% inflation target will be another area of interest to markets.
