ExchangeRates.org.uk - At the time of writing GBP/USD was trading at around $1.2837, up roughly 0.4% from Wednesday’s opening rate. The Pound (GBP) managed to attract investor attention on Wednesday following a speech from the Bank of England’s Chief Economist Huw Pill. Pill spoke in Asia House in London, and remarked on the stickiness of UK services inflation, however, also pointed to signs of inflationary pressures ‘being contained’. This led to an increase in deferred BoE interest rate cut bets, which ultimately underpinned Sterling sentiment on Wednesday.
Pill commented: ‘At annual rates still not far from 6%, annual services price inflation and wage growth continue to point to an uncomfortable strength in those underlying inflation dynamics. But the latest data also remains consistent with the view that these inflationary pressures have now been contained, and may be starting to revert towards levels that are more consistent with the achievement of the inflation target.’
US Dollar (USD) Rebounds following Hawkish Powell
The US Dollar (USD) was able to reverse some of its losses on Wednesday as markets digested Federal Reserve Chair Jereomy Powell’s latest testimony. Powell testified before Congress on Tuesday, where he was grilled on his decision to keep interest rates at 20-year highs. However, Powell stuck a hawkish tone, suggesting the central bank remains data driven in its approach to loosening monetary policy, and would not consider cutting rates until the Fed has greater confidence that inflation is returning to the central bank’s 2% target.
Powell said to the Senate Banking Committee: ‘After a lack of progress toward our 2% inflation objective in the early part of this year, the most recent monthly readings have shown modest further progress. More good data would strengthen our confidence that inflation is moving sustainably toward 2%.’
As such, the ‘Greenback’ managed to stay above ground during Wednesday’s European session.
GBP/USD Forecast: US Inflation in the Spotlight
Looking ahead, the primary catalyst of movement for the Pound US Dollar exchange rate this week will likely be the publication of the latest US consumer price index. Although core inflation is expected to remain unchanged at 3.4% in June, headline inflation is forecast to cool, expected to fall from 3.3% to 3.1%. Should the latest inflation reading mirror expectations and confirm a cooling in US inflation, this could in turn ramp up Federal Reserve interest rate cut speculation and undermine USD. Turning to the Pound, the UK will release its latest month on month GDP reading on Thursday. Will a marginal increase in economic growth in May buoy the Pound? Risk appetite could also impact the GBP/USD exchange rate this week. Should markets engage in positive trade, the Pound US Dollar exchange rate will likely gain ground, however, should a cautious market mood prevail, GBP/USD could spend the week on the back foot.
This content was originally published on ExchangeRates.org.uk
