ExchangeRates.org.uk - The US Dollar was muted as the week opened, hovering close to recent lows in the wake of some downbeat jobs data, amid a lack of fresh releases on Monday. A mixed market mood failed to lend the safe-haven currency additional support, as ramped up expectations of a Federal Reserve interest rate cut during the third quarter further stymied the ‘greenback’. On Tuesday, comments from Fed Chair Jerome Powell then lent USD some support, as the senior rate-setter cautioned against easing monetary policy too soon. Additional hawkish commentary from Fed policymaker Michelle Bowman then underpinned the US Dollar, before the ‘greenback’ retreated as investors braced for the latest US inflation release. Thursday saw both headline and core inflation cool more than forecast, causing the ‘greenback’ to nosedive amid surging Fed rate cut bets. The vital consumer price index dropped to a one year low of 3%, edging notably closer to the central bank’s 2% target rate. In turn, market expectations of a September rate cut leapt to almost 85%, leaving USD to tumble against its rivals. As the week drew to a close, the latest producer price index printed warmer than forecast, though failed to uplift USD’s recent losses. As such, the ‘greenback’ ended the week on a sour note, as investors and analysts alike speculated over the likelihood of a dovish tilt from the Fed.
Pound (GBP) Rallies amid Improved UK Growth Outlook
The Pound (GBP) edged slightly higher on Monday as markets remained optimistic in response to the UK government’s landslide Labour victory. As Keir Starmer’s party pressed ahead with plans to boost economic and fiscal growth in the UK, GBP sentiment remained upbeat. Hawkish commentary from Bank of England (BoE) policymaker Jonathan Haskel also lent Sterling additional support, with the BoE hawk advocating for further rate holds in the central bank’s looming August meeting. Mid-week, BoE Chief Economist Huw Pill echoed his peers’ hawkish comments, citing sticky wage growth and stubborn services inflation as ongoing barriers in the central bank’s fight against inflation. Following Pill’s remarks, the likelihood of an August rate cut retreated to 50% from a previous 62%, thereby lifting the Pound. GBP then rallied on Thursday following a better-than-forecast GDP release. On a monthly basis, the UK economy expanded by 0.4% in May, rather than a more modest 0.2% as economists had forecast, and rebounding from 0% growth in April. This saw GBP leap to a yearly high amid hopes of economic recovery following the UK’s brief dip into a technical recession last year. As the week drew to a close, strong growth tailwinds buoyed GBP amid a lack of fresh releases, though Sterling’s upside was largely limited amid thin trading conditions.
Pound US Dollar Exchange Rate Forecast: UK Inflation in Focus
Looking ahead, the focus for GBP investors this week will likely be the latest UK inflation data, due for release on Wednesday. Should the UK’s CPI hold at 2% for a second consecutive month, increased expectations of an August rate cut from the BoE could see Sterling retreat from recent wins. Looking to the US, an influx of speeches from Federal Reserve policymakers may drive notable USD volatility, especially if rate-setters express a dovish consensus.
This content was originally published on ExchangeRates.org.uk
