ExchangeRates.org.uk - The Pound (GBP) had a strong session last week, with the increasingly risk-sensitive currency initially buoyed by an upbeat market mood. Sterling enjoyed more significant gains on Wednesday after the UK consumer price index for August exceeded expectations, with core inflation jumping from 3.3% to 3.6% and services inflation leaping from 5.2% to 5.6%. This set the stage for the BoE decision on Thursday, with policymakers overwhelmingly voting in favour of keeping rates unchanged at 5% despite the Federal Reserve delivering a supersized 50bps rate cut the night before. The policy divergence propelled the GBP/USD exchange rate to a 30-month high. The Pound pushed even higher on Friday after UK retail sales smashed forecasts. Sales grew 1% in August, above forecasts of 0.4% and up from July’s upwardly revised 0.7%. GBP/USD hit a 31-month high, but some profit-taking trimmed gains.
US Dollar (USD) Collapses as Fed Cuts Rates
Meanwhile, the US Dollar (USD) was hammered by the Federal Reserve’s policy announcement, as the Fed decided to kick off its rate-cutting cycle with a huge half-point cut. This sent USD into a tailspin as markets responded to the Fed decision. A larger-than-forecast decline in initial jobless claims lent the ‘Greenback’ some cushioning on Thursday. However, the dovish Fed decision and a prevailing risk-on mood continued to pressure USD through to the end of the week.
GBP/USD Exchange Rate Forecast: Sticky US Inflation to Help USD Recover?
Looking at the week ahead, the session kicks off with the UK’s September PMI results. An expected slowdown in UK business activity this month could take the shine off the Pound. USD investors may be focused on a series of speeches from Fed officials, including Fed Chair Jerome Powell. Any indication that more rate cuts are coming in the near future could pile fresh pressure on the ‘Greenback’. At the very end of the week, the Fed’s preferred measure of inflation – the core PCE price index – is due out. With inflation set to hold steady at 2.6%, USD could end the week on a positive note.
This content was originally published on ExchangeRates.org.uk
