Pound US Dollar (GBP/USD) Exchange Rate Firm on Surprise UK Inflation Upside

November 21, 2024 - Written by John Cameron

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Firm on Surprise UK Inflation Upside

The Pound to US Dollar (GBP/USD) exchange rate traded in a tight range on Wednesday as stronger-than-expected UK inflation data balanced out broader market risk aversion.

At the time of writing, GBP/USD was trading around $1.2680, showing little movement from Wednesday’s opening levels.

The Pound (GBP) strengthened on Wednesday morning following the release of the UK’s latest consumer price index.

The Office for National Statistics (ONS) reported that inflation accelerated from 1.7% to 2.3% in October, exceeding predictions of a smaller rise to 2.2%. This marks the highest inflation rate since April.

While the rise in headline inflation was driven largely by an increase in the UK energy price cap, a surprising uptick in core inflation—excluding volatile energy and food prices—indicates persistent price pressures across the economy.

This bolstered Sterling as markets pared back expectations for a December rate cut from the Bank of England (BoE). The odds for another BoE rate cut next month now stand at just 16%.

The US Dollar (USD) also found support on Wednesday as global risk aversion saw investors turn to the safe-haven currency.

This shift followed escalating tensions between Russia and Western nations, with reports of the US closing its embassy in Kyiv due to potential threats of a ‘significant attack’.

The Kremlin’s response to Ukraine using US-supplied long-range missiles has heightened fears of escalation, with Russia threatening severe retaliation.

These developments kept the USD in demand amid the tense geopolitical climate.

Looking forward, the GBP/USD exchange rate could remain under pressure if geopolitical tensions persist.

Should the conflict between Russia and Ukraine escalate further, safe-haven flows into the US Dollar may continue, potentially weighing on the Pound.

Meanwhile, the Confederation of British Industry’s (CBI) latest industrial trends orders index could impact the Pound. A report showing continued weakness in factory orders for November may dampen Sterling sentiment.

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