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Pound US dollar exchange rate: GBP falls to one-week low on static inflation rates

Pound US dollar exchange rate: GBP falls to one-week low on static inflation rates

This decline is down to continued negative sentiment from Tuesday’s UK wage growth slowdown, as well as today’s unimpressive inflation figures.


The rate of price growth in the UK has remained steady for May’s readings, printing at 2.4 per cent on the year and 0.4 per cent on the month.


Overall, annual UK inflation rates remain at a one-year low but above the Bank of England’s (BoE) 2 per cent target range.


These results won’t put any additional pressure on the BoE to raise interest rates, but they do mean that UK households have dodged another wage squeeze, for the time being.



It had been forecast that annual inflation might rise to 2.5 per cent because of higher fuel prices, but the effects of this increase might not be felt until June’s reading.


In an accompanying statement, looking at price changes in detail, Office for National Statistics (ONS) analysts stated:


“Rising motor fuel prices produced the largest upward contribution to the change in the rate between April and May 2018.


“There were also large upward effects from air and sea fares, which rose between April and May this year but fell between the same two months a year ago, influenced by the timing of Easter.



“Partially offsetting downward effects came from price changes for games, domestic electricity, food and non-alcoholic beverages, and furniture and furnishings.”


On the other side of the currency pairing, the US dollar has appreciated against the pound and other peers as a result of US inflation data and a key Federal Reserve meeting later on.


Tuesday’s US inflation rate figures for May showed above-forecast growth for the year-on-year reading, with a rise from 2.5 per cent to 2.8 per cent.


For USD traders, this is good news as it heaps more pressure on the Fed to make at least three interest rate hikes in 2018; so far there has only been one in March.



US households have a less rosy situation, as the latest inflation rate rise now puts incomes under pressure from higher costs for everyday goods and services.


Looking ahead, the US dollar is likely to retain the upper hand over the pound for the rest of the day as the evening’s Federal Reserve interest rate decision approaches.


Fed officials are largely expected to vote for higher interest rates, with a shift from 1.75 per cent to 2 per cent.


Although this has largely been priced in, the US dollar could still rise sharply on such news.


Thursday morning could see the pound recover in the GBP/USD pairing, as annual UK retail sale levels in May are predicted to show considerable growth.