Pound to Dollar Rate Retreats As Uptick in U.S. Inflation Pushes Fed Rate Cuts Into the Distance
PoundSterlingLIVE – The Dollar strengthened against the Pound, Euro and other major currencies after the release of data that showed U.S. inflation accelerated in December.
U.S. CPI inflation rose 3.4% year-on-year in December, according to the BLS, up from 3.1% in November and surpassing the 3.2% consensus expectation.
Core inflation edged lower to 3.9% y/y in December from 4.0% previously, but this was higher than the consensus expectation for a decline to 3.8%.
The Pound to Dollar exchange rate dipped to 1.2702 in the minutes following the release, a predictable response to the undershoot.
“This should offer some support to the Dollar going forward,” says a note from Wagering Advisors following the data release.
Money markets further pared bets for an imminent interest rate cut at the U.S. Federal Reserve, lending some support to U.S. bond yields.
“You ain’t getting a March rate cut. It is the kind of print that shouts the Fed does not need to rush to cut this quarter,” says Neil Wilson, Chief Market Analyst at Finalto.
“Disinflation won’t be linear and we think the Fed is going to be rather (perhaps overly) cautious in easing in this kind of environment. It’s going to take way, way longer to get to target,” he adds.
The Dollar has started 2024 on a strong footing as the market lowers expectations for the scale of cuts at the Fed over the coming months in the face of evidence of ongoing strength in the U.S. economy.
This can put a layer of support under the Dollar and frustrate the Pound-Dollar exchange rate’s ascent, potentially capping it just above 1.28 for the foreseeable future.
“We believe that there’s still not enough evidence for the central bank to start cutting rates,” says Nigel Green, CEO of deVere Group. “With inflation remaining sticky, we expect rates will be higher for longer. We don’t see a policy pivot in sight.”
An original version of this article can be viewed at Pound Sterling Live
