GBP Faces Heavyweight USD Amid New Inflation Data

The GBP faces the heavyweight USD amid new inflation data released this morning.

With the US Dollar at the highest level since 2000, the currency has fed into inflationary pressures in most countries.

Since the beginning of 2022, the USD has appreciated by 22 percent against the Yen and 13 percent against the EUR because of interest rate hikes in the US, according to the International Monetary Fund (IMF). For each 10 percent the USD rises against a currency, it adds around 1 percent to the inflation rate, said the IMF. This is because 40 percent of world trade is denominated in US Dollars and approximately 50 percent of all cross-border loans and global debt securities are in USD.

The GBP is no exception, tracking a downward trend versus the USD since the beginning of the year. While we can’t predict the future, if inflation remains at high levels in the US and UK the currencies are likely to continue to be part of the dynamic of interest rate differentials.

On an annual basis, inflation in the UK rose to 10.1 percent in September compared with 9.9 percent previously, slightly higher than expected.

In other trading news, the Bank of Canada will release an inflation rate update later today. Core inflation is expected to have declined from 5.8 percent in September 2021 to 5.6 percent in September 2022. Any surprises to the upside or downside may move the CAD currency pairs.

Thursday, October 20 sees the release of Australia’s Employment Change data. Expected to have fallen from 33.5K in August to 25K in September, Australia’s labour market is tight to the point that the country's industrial sector is feeling the pinch and looking for ways to attract workers from abroad.

Also on Thursday, the UK’s Gfk Consumer Confidence Index for October is expected to have worsened from minus 49 to minus 52. Anything unexpected in the actual results may move the GBP currency pairs.

Finally for the red-flagged economic events this week, we’re watching Japan's inflation rate data for September. Previously at the level of 3 percent for September 2021, annualized inflation is expected to have risen to 3.2 percent in the same period this year. Core inflation is seen at 3 percent for September this year compared to 2.8 percent for the same month last year.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.