US Data Increases Dollar Uncertainty, GBP/USD Recovers from 4-Week Lows

October 13, 2024 - Written by David Woodsmith

STORY LINK US Data Increases Dollar Uncertainty, GBP/USD Recovers from 4-Week Lows

The latest US data triggered fresh uncertainty over economic direction and also lead to choppy trading in currency markets.

The Pound to Dollar (GBP/USD) exchange rate briefly dipped to 4-week lows at 1.3025 after the US data before a recovery to 1.3080.

US consumer prices increased 0.2% for September, above consensus forecasts of 0.1% with the year-on-year inflation rate edging lower to 2.4% from 2.5%, but above expectations of 2.3%.

Core prices increased 0.3%, also above expectations of 0.2%, with the annual rate edging higher to 3.3% from 3.2%.

Initial jobless claims jumped to 258,000 in the latest week from 225,000 previously and above expectations of 230,000. Continuing claims also increased sharply to 1.86mn from 1.82mn.

The consumer prices data will cause renewed inflation concerns, while the claims data will trigger fresh reservations over the labour market, although the data may have been distorted.

Fed minutes from the September policy meeting recorded that a substantial majority for the decision to cut interest rates by 50 basis points. A few members preferred a smaller 25 basis-point cut, although the overall scale of dissent appeared limited.

According to ING; “Reading through the September FOMC minutes, there seemed no sense of urgency from the Fed to get rates lower – even though it did cut by 50bp. More a sense that the inflation scare was over, unemployment was drifting higher and a risk management approach required a recalibration of policy.”

Political developments will also be watched closely, especially with opinion polls still suggesting a tight contest.

MUFG commented; “The price action suggests other factors are at play and could be an indication that market participants are pricing in more of a risk premium to reflect the rising probability of Donald Trump becoming the next president. According to Polymarket, the probability of Trump winning has risen up to 53.5% this week. A development that would be supportive for the US dollar as well posing upside risks for US yields.”

UK data was broadly positive, although there was no significant Pound benefit.

The RICS housing survey recorded that a net 12% of surveyors reported an increase in house prices for September after a revised reading of zero previously. This was above consensus forecasts of 9% and the first positive reading since October 2022.

According to the survey; “Moreover, forward-looking sentiment is consistent with further modest growth in headline sales volumes over the coming months, while expectations for the year ahead are also firmly in expansionary territory.”

Tarrant Parsons, head of market analytics at RICS commented; “Critical for the outlook, a further unwinding in monetary policy is anticipated over the months ahead, which should create a more favourable backdrop for the market moving forward.”

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TAGS: Pound Dollar Forecasts