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GBP Nears 10-Day High Versus USD, Even Though US Inflation Rises

Market CommentaryGBP Nears 10-Day High Versus USD, Even Though US Inflation Rises
The pound to US dollar interbank exchange rate has hit 1.4049 today, close to its highest since February 5th, even though US inflation rose by +0.5% in January. Image credit: Cavell L. Blood.
The pound to US dollar interbank exchange rate has hit 1.4049 today, close to its highest since February 5th, even though US inflation rose by +0.5% in January. Image credit: Cavell L. Blood.

by Peter Lavelle

Welcome to Pure FX’s latest update of the pound to US dollar interbank exchange rate.

This tells you when it’s a favourable time to exchange pounds to US dollars, for your money transfer!

Sterling leaps versus the greenback! The pound to US dollar interbank exchange rate has hit 1.4049 today, just a whisker below its highest in 10 days, or since February 5th.

The pound has climbed against the US dollar, even though US inflation rose by +0.5% in January month-on-month, said the US Bureau of Labour Statistics yesterday, above forecasts for +0.3%.

What’s more, sterling has also jumped, although US inflation held steady at +2.1% in January compared to a year ago, above predictions for +1.9%, plus the Federal Reserve’s target of +2.0%.

This has lifted sterling, even though we would ordinarily expect higher US inflation to boost the US dollar, as higher inflation lifts the odds that the Federal Reserve will hike US interest rates.

Instead though, the pound has jumped against the buck, because even with higher US inflation, financial markets feel upbeat about the global outlook, thus cutting demand for the US dollar.

In particular, sterling has strengthened, because international money managers think that the world’s GDP will grow quickly this year, even with higher US inflation, so weakening the buck!

US dollar declines, as America’s retail sales sink

Moreover, the pound to US dollar interbank exchange rate has also strengthened, because America’s retail sales unexpectedly sank in January, said official statistics yesterday.

According to the US Census Bureau on Wednesday, America’s retail sales fell -0.3% last month, below financial market forecasts for a +0.2% rise, thus weakening the US dollar.

This has dragged down the greenback in particular, because this was the sharpest fall in US retail sales in 11 months, and follows December’s downgraded figure of 0.0% sales growth.

US retail sales dropped in January, especially because there were -1.3% fewer automobile sales, the sharpest drop since August, thereby weighing against the buck too.

This has hurt the greenback, because consumer spending makes up for 66% of America’s economy. So, when retail sales sink, US GDP growth could slow in the coming months.

With all this in mind, the pound has neared this 10-day high against the US dollar today, and may rise further, looking ahead!

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Please bear in mind, this article is Pure FX’s opinion only and does not constitute advice. Moreover, the exchange rates referred to in this article are the interbank rates, which are the rates at which banks and financial institutions buy and sell currency to each other. Therefore these exchange rates cannot be accessed by individuals or SMEs, and are not the same rates that Pure FX can offer. To get a free exchange rate quote, call us on +44 (0) 1494 671800, or email peter.lavelle@purefx.co.uk.

References

1. Lucas Jackson, “January retail sales post biggest decline in 11 months”, February 14th 2018, CNBC.com, https://www.cnbc.com/2018/02/14/us-retail-sales-jan-2018.html
2. Shinichi Saoshiro, “Stocks climb despite rise in U.S. inflation; dollar on defensive”, February 15th 2018, Reuters.com, https://www.reuters.com/article/us-global-markets/stocks-climb-despite-rise-in-u-s-inflation-dollar-on-defensive-idUSKCN1FZ02S
3. Sho Chandra, “Retail Sales in U.S. Decline After December Revised Down”, February 14th 2018, Bloomberg.com, https://www.bloomberg.com/news/articles/2018-02-14/u-s-retail-sales-unexpectedly-fall-after-december-revised-down

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