Pound US dollar exchange rate sinks as UK inflation remains at three-year low

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12 shares, 81 points
Pound US dollar exchange rate sinks as UK inflation remains at three-year low 1

Ruth Gregory, an Analyst at Capital Economics, was downbeat in her analysis, saying: “With inflation well below target, little sign of underlying price pressures and GDP growth running below trend, an interest rate cut [from the BoE] on Thursday shouldn’t be completely ruled out”. Meanwhile, markets continue to react negatively to Prime Minister Boris Johnson’s vow to outlaw an extension to the Brexit “transition period” beyond a late December 2020 deadline. The multinational investment bank, JP Morgan, warned that there is now a 25 percent risk that the UK and the EU could fail to agree on a deal by the end of 2020, a possibility that they described as “uncomfortably high”. 

With fears of a cliff-edge Brexit next year continuing to haunt UK markets, the pound to US dollar has remained subdued today.

The US dollar edged higher against the pound after yesterday’s surge in US industrial production dispelled fears of a slowdown in one of America’s largest sectors. 

Michael Pearce, Senior US Economist at Capital Economics, was mixed in his response, saying: “Output still looks set to fall in the fourth quarter overall, but with the global backdrop stabilising, trade tensions easing and the dollar no longer appreciating, prospects for the industrial sector look set to brighten a touch in 2020.”

US-China trade developments continue to drive the US dollar today, although US markets are awaiting a clearer statement from Washington on the text put forward by Beijing.  

Looking ahead, pound investors will be paying close attention to the Bank of England’s interest rate decision tomorrow, with any dovish commentary about the economy post-Brexit in the minutes weakening the pound to US dollar exchange rate. 


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