The GBP/USD pair remains stable as it approaches the release of the United States Consumer Price Index (CPI) data for December. Scheduled for publication at 13:30 GMT, this data is expected to draw significant attention from market participants. Most recently, the Greenback hit a 40-year low against the Pound Sterling (GBP). This drop follows a contentious episode with Federal Reserve Chair Jerome Powell — further complicating the economic picture.
The British Pound has managed to retain its position around 1.3470 against the US Dollar during Tuesday’s European trading session. This flatness comes on the heels of several days of very positive growth. Traders are more than cautiously optimistic now as they juggle the soon-to-be-released CPI figures.
Impact of US CPI Data
The US CPI data is one of the most important gauges of inflation expectations. It has a huge effect on what the Federal Reserve decides to do with monetary policy. Investors will scrutinize the numbers most stringently to determine if there is upward or downward inflationary pressure, which could affect the frequency of future interest rate hikes. Should the CPI print hotter, that could raise the specter of tighter monetary policy being required. A softer CPI could stoke expectations for earlier rate cuts.
As the clock ticks down to the release, traders establishing their positions ahead of what many expect to be a market-shaking announcement. These numbers are really, really key. They determine economic forecasts and drive up or down currency valuations by a very large magnitude.
Federal Reserve Chair Under Scrutiny
The market is starting to feel the jitters with increased market volatility. The US Department of Justice is preparing an indictment of Federal Reserve Chair Jerome Powell. This extraordinary circumstance was triggered by the dust kicked up by testimony by Powell at recent congressional hearings about a $200M renovation project at the Fed. Read more about the impact of this threat on financial markets here. Most importantly, it will weaken Fed’s credibility and complicate its future decision-making.
This threat has further weakened the Greenback. Investors are still trying to figure out how confident they should be in US leadership on monetary policy. With Powell’s future now in question, traders are likely going to be on the edge. They are openly trying to influence how this might affect the country’s economy and currency markets.
Pound Sterling Gains Momentum
Though gripped by such a chaotic scene, the Pound Sterling has managed to continue to cling on to the gains it saw on Monday. With the GBP/USD pair sitting around 1.3470, that suggests optimism and strength among traders. The GBP is getting stronger, attributable in part to the Greenback’s softening. This profit potential makes it a fantastic time for investors with long positions on the British currency.
Property market analysts welcome the stability as a positive indicator of returning confidence in the UK economy. This confidence continues in the face of growing outside force from international events. If the next CPI data due to be released shows inflation remains on a softer path, this could shore up this generally positive development for the Pound.