ExchangeRates.org.uk - At the time of writing GBP/USD was trading at $1.2967, virtually unchanged from Tuesday’s opening rate.
US Dollar (USD) Struggles to Recoup Losses amid Tepid Fed Comments
The US Dollar (USD) was largely subdued on Tuesday as Federal Reserve Chair Jerome Powell continued to strike a dovish tone regarding upcoming Fed monetary policy decisions. Speaking at the Economic Club in Washington DC at the start of the week, Powell suggested that the central bank could consider lowering interest rates before US inflation hits the Fed’s 2% target rate, which served to keep USD on the backbench.
The senior Fed rate-setter commented: ‘The implication of that is that if you wait until inflation gets all the way down to 2%, you’ve probably waited too long, because the tightening that you’re doing, or the level of tightness that you have, is still having effects which will probably drive inflation below 2%.What increases that confidence in that is more good inflation data, and lately here we have been getting some of that.’
Powell’s remarks reinforced a recent surge in Fed rate cut bets, with the CME FedWatch Tool now showing that markets expect 68 basis points worth of cuts this year, with a September rate cut now fully priced in.
Pound (GBP) Wavers ahead of UK CPI Release
The Pound (GBP) traded without a clear trajectory on Tuesday as markets braced for the UK’s latest batch of inflation data. Amid a lack of fresh releases, news from UK based market research firm Kantar showed that grocery inflation had eased to 1.6% in July, nearing a three-year low. Ahead of the UK’s latest consumer price index (CPI) release, news of widespread and continually easing UK inflation kept Sterling largely subdued against its rivals. Economists expect that headline inflation in the UK will have remained unchanged in June, printing at 2% for a second consecutive month and holding steady at the Bank of England’s target rate. While a cooling UK CPI bolsters the case for an August interest rate cut from the central bank, some economists have argued that sticky services inflation and stubborn wage growth could see the BoE defer its rate cut cycle.
Chris Forgan, Portfolio Manager at Fidelity, noted: ‘Services inflation is still higher than the Bank of England would like, but we believe it will begin its rate cutting cycle before long, which should further stimulate economic activity.’
Elsewhere, speculation that the UK’s freshly appointed Labour government could have altered the central bank’s proposed rate-cutting timetable.
Pound US Dollar Exchange Rate Forecast: UK Inflation in Focus
Looking ahead, the UK’s looming inflation print will likely be the core catalyst of GBP movement. With both headline and core inflation set to remain unchanged at 2% and 3.5%, respectively, dialled up BoE rate cut expectations may see the Pound stumble. Looking to the US, speeches from Federal Reserve policymakers may drive notable USD volatility. Further dovish signals could see the ‘greenback’ extend its recent losses. Alternatively, any push back against imminent monetary loosening could see USD regain some
This content was originally published on ExchangeRates.org.uk
