Pound surges to 15-month high against the dollar as US inflation cools
Pound rises to 15-month high against dollar as US inflation falls to lowest level in more than two years
The pound rose to a 15-month high against the dollar yesterday after US inflation fell sharply to its lowest level in more than two years.
The larger-than-expected drop to 3 percent in June from 4 percent in May underlined the success of the Federal Reserve in managing price pressures – in stark contrast to the UK, where the Bank of England is struggling to contain inflation, which is stuck at 8.7 percent.
The Bank had been slow to address the price pressure, claiming it would prove to be ‘transient’ before shifting gears and embarking on a series of rate hikes.
Yesterday’s numbers resulted in the pound gaining 0.47 percent against the dollar, with the pound trading as low as $1.30. The last time the pound reached $1.30 was in April 2022.
The dollar lagged against other currencies as traders lowered bets on Fed rate hikes.
Inflation shock: Sterling gained 0.47% against the dollar, with the pound trading as low as $1.30. The last time the pound reached $1.30 was in April 2022
The British pound is up 2.28 percent against the dollar this month as markets bet on further rate hikes from the Bank of England.
It comes as swaps markets are pricing in peak bank interest rates of nearly 6.5 percent in March next year.
Matthew Ryan, head of strategy at Ebury, said it was “going to be the most aggressive major central bank in the world between now and then.”
The fall in US inflation comes on the back of the Fed’s aggressive rate hike last year, which raised rates four times by a 0.75 percentage point bumper during a burst of policy tightening last year.
That has resulted in inflation, which had reached 9 percent last year, quickly moving back towards the target of 2 percent.
Core inflation, which removes volatile food and energy costs, has proven stickier. But the latest numbers showed it fell faster than economists had expected, from 5.3 percent to 4.8 percent.
Former Fed Vice Chairman Lael Brainard said the news was proof that the country was winning its inflation battle without severe labor market pain.
“We saw new and encouraging evidence that the economy is moving towards moderate inflation, accompanied by a resilient job market.”
“Today’s report is consistent with our view that the Fed’s tightening is its last innings,” Goldman Sachs economists wrote, with an expected rise of a quarter of a percentage point in July “followed by unchanged policy for the remainder of the year.” .
