ExchangeRates.org.uk - Meanwhile, the US Dollar (USD) has come under pressure this week as the 10-year US Treasury bond yield corrects downwards. At the time of writing, GBP/USD is trading at $1.2786, having climbed by 0.2% in the past 24 hours. The Pound (GBP) ticked higher against its peers yesterday as June’s unemployment rate printed at 4.2% from 4.4% in May – 0.3% below the expected reading. Following the data’s release, markets were forced to reassess the likelihood of an imminent interest rate cut from the Bank of England (BoE). Further complicating the central bank’s rate cut trajectory was a slower-than-expected decline in the Office for National Statistics (ONS)’s average wage growth reading.
Commenting upon the release, Rob Morgan, chief investment analyst at wealth manager Charles Stanley said: ‘Today’s job numbers have all but ended hopes of a further interest rate cut for a few months... An employment market taking a long time to balance strengthens the case of the MPC hawks who want to wait for more evidence before they reduce rates any further.’
Following last week’s broad GBP downturn, the latest employment report supplied Sterling with a welcome tailwind: formerly, Pound sentiment had been depressed by uncertainty over central bank policy, as well as intermittent risk-off sentiment and nationwide protests over a stabbing in Southport. Looking ahead, analysts believe that the BoE is likely to keep interest rates on hold in September; but could cut again in November and December by 25bps per meeting.
US Dollar (USD) Corrects Lower as Traders Await Inflation Data
The US Dollar (USD) trended down against several peers on Tuesday, pressured by retreating treasury bond yields and political uncertainty ahead of the US elections. In the near term, markets awaited the latest producer price inflation report; headline inflation was set to remain unchanged for the month of July, though core PPI looked to weaken. A decline in inflationary pressures is likely to reduce expectations of a 50bps interest rate cut from the Federal Reserve, which may be USD-positive. Nevertheless, the more influential inflation data will be released today – ahead of July’s consumer price report, US Dollar movement could be minimal. At the time of writing, markets predict a 52.5% chance of a 25bps rate cut in September, and a 47.5% chance for a 50 bps cut. Also affecting ‘Greenback’ performance yesterday could have been political headwinds. In the run-up to November’s election, uncertainty over who will win the voters’ favour caps USD optimism. Analysts at Commerzbank (ETR:CBKG) consider that a Trump presidency could be negative for the world’s largest economy.
Ulrich Leuchtmann, Commerzbank’s Head of FX and Commodity Research, notes: ‘It seems, Trump advocates a disastrous political influence on the Fed... Everything inflationary that we are already seeing in the US economy and everything inflationary that a Trump administration would produce on top of that would no longer be USD-positive, but negative.’
Some volatility in the markets was unable to boost ‘Greenback’ sentiment, as risk sensitivity sent investors flocking to other risk-off assets. Ongoing tensions in the Middle East sapped bullish momentum, yet Federal Reserve uncertainty kept USD from reaping the rewards.
GBP/USD Exchange Rate Forecast: Inflation Data in Focus
The Pound Dollar exchange rate will likely trade upon key inflation data today, from both the US and the UK. The first to be released is the UK’s July inflation rate – headline inflation for the year is expected to have risen to 2.3%. If the data prints as expected, BoE rate cut bets could proliferate, sending GBP morale lower – yet a fall in core inflationary pressures could counter headwinds. Later in the session, US inflation data is expected to have slowed on an annual basis, though core price pressures look to have increased on the month. Following the release, the possibility of an interest rate cut from the Fed in September is likely to remain strong.
This content was originally published on ExchangeRates.org.uk
