The dollar was static on Wednesday as data revealed US inflation rebounded by more than expected in October. Rising consumer price pressures might deter the Federal Reserve from making further rate cuts in the near future, so the news provided USD exchange rates with some underlying support. The Labor Department revealed the largest gain in the US Consumer Price Index (CPI) since March, as households paid more for energy products, food and healthcare, pushing the index up by 0.4 percent.
Meanwhile, US President Trump’s hotly anticipated speech disappointed by revealing very little and offered no further details on US-China progress, only stating that an initial trade deal would be completed “soon”.
Wednesday saw Sterling remain largely stable despite disappointing UK data, as inflation slumped to a three-year low – supporting the argument in favour of a near-term rate cut from the Bank of England (BoE).
The pound continued to benefit from the upswing in political optimism following Brexit Party leader Nigel Farage’s announcement that his party would not contest seats won by the Tory party in the 2017 election.
The currency received further support from a YouGov poll which revealed the Conservatives had managed to get a 14-point lead over Jeremy Corbyn’s Labour Party.
Commenting on this, MUFG’s head of research, Derek Halpenny said: “The pound is likely to remain well supported as long as the political news-flow pointing to a Tory majority continues.
“There is a price to pay for these gains – a promised short transition period that will weigh on sentiment and with the economy set to weaken further as household spending weakens, pound gains will be contained.”
Looking ahead, the GBP/USD exchange rate could dip as the Federal Reserve’s Jerome Powell testifies before Congress if Mr Powell focuses on the strengths of the American economy and emphasises the Fed is not going to cut rates again in the near future.