Pound US dollar exchange rate plummets as Fed rate expectations grow

The pound pushed higher against the majority of its peers yesterday, but continued to struggle against the US dollar following hints the Federal Reserve may be looking to increase the pace of its monetary tightening.

Sterling appears to be consolidating its gains this morning with GBP/EUR flat at €1.1425, GBP/CAD muted at C$1.7514. While GBP/AUD and GBP/NZD both hold steady at AU$1.8050 and NZ$1.9300 respectively.

However GBP/USD continues to weaken, falling to $1.3515.

The US will publish its latest PPI figures later this afternoon, with the US dollar likely to tumble if producer prices rise slower in April, as forecast…

What’s been happening?

The pound ticked higher against some of its peers of Tuesday as the reopening of UK markets following the bank holiday weekend helped to shore up Monday’s gains.

Somewhat limiting Sterling’s potential to advance was the release of the UK’s latest housing data, with Halifax reporting UK house prices slumped 3.1% in April, the biggest monthly fall in almost eight years.

The GBP/EUR exchange rate strengthened yesterday despite some positive German data.

While investors welcomed a rebound in German industrial production in March, the euro slipped as it failed to offset some weaker Eurozone data published at the start of the week. It also failed to divert attention away from growing concerns that the current political deadlock in Italy could lead to the country returning to the polls.

On the other hand the GBP/USD exchange rate was prevented from advancing on Tuesday due to some hawkish remarks from Federal Reserve Chair, Jerome Powell as he warned markets should not be surprised by additional monetary tightening from the bank.

Also bolstering the appeal of the US Dollar was the publication of the latest US job opening figures, which revealed the number of openings had shot up to a new all-time high in March.

What’s coming up?

It’s looking like a quiet session in terms of UK data today, which is likely to leave markets focusing on the Bank of England’s (BoE) impending rate decision.

This may leave the Pound at a standstill as investors are likely to be reluctant to alter their positions in Sterling until they have a clear idea of how the bank is planning to proceed with its monetary policy this year.

At the same time the a lull in Eurozone data may leave the euro largely subdued today after figures published earlier this morning revealed French industrial production fell sharply in March.

Meanwhile a possible slide in the latest US producer price index could weaken the US dollar later this afternoon, with a possible drop in PPI indicating that inflation may not have risen last month as forecast.