GBP/USD: Pound Resiliant vs. Dollar On Brexit Optimism

The British pound is little changed against the US dollar on Wednesday morning.

  • GBP/USD makes new closing high for 2020
  • Dollar index (DXY) makes new 2-year low
  • UK inflation tops expectations, should keep BOE on hold
  • FOMC July meeting Minutes released late

GBP/USD was down by 1 pip (-0.01%) to 1.3235 as of 4pm GMT. This week the pound-dollar exchange rate is higher by +1.26%.

The currency pair paused for breath, trading near yesterday’s close after reaching a new  high for 2020.

GBP: Pound unchanged after inflation data

Cable is aiming for a 5th daily gain on Wednesday after reaching new highs for the year. It saw modest gain in reaction to UK inflation data for July that rose more than expected.

The easing of lockdown conditions helped spur economic activity and the extra demand for goods and services pushed prices higher than though in July. The reason for jump largely stems from higher prices ‘at the pump’ in petrol stations in the wake of a huge gain in oil prices. But core inflation, which strips out food and energy, also rose more than forecast, with spending on haircuts, dental treatment and physiotherapy reportedly some of the biggest contributors.

Consumer price inflation rose 1.0% year-over-year in July, above the 0.6% previous reading and the 0.6% expected. Core CPI rose 1.8% while retail price inflation (RPI) rose to 1.6%.

USD: Awaiting Fed minutes

There has seen some reduction in selling of the US dollar overnight following a fresh drop to 2-year lows in the dollar index, a measure of the US dollar against a basket of major currencies.

The dollar has been falling amid a lack of agreement in Congress over a new stimulus package. A smaller deal than first though, or no deal at all would likely slow America’s economic recovery in the second half of 2020.

The sense of caution comes before Federal Reserve meeting minutes are released at 2pm ET. The Fed left interest rates on hold and took a more optimistic view of the economy given the improving economic data. The minutes will reveal the extent of the concern among policymakers about the effect the rising coronavirus cases will have on the economic recovery.