ExchangeRates.org.uk - At the time of writing GBP/USD was trading at around $1.2730, up roughly 0.2% from Wednesday’s opening rate. The Pound (GBP) managed to firm against the majority of its peers on Wednesday following the publication of the UK’s latest consumer price index. In May, both headline and core inflation fell as forecast, with headline inflation dropping from 2.3% back down to the Bank of England (BoE) 2% target, meanwhile core inflation eased from 3.9% down to 3.5%. Despite confirmation of easing headline and core inflation, Sterling was able to catch bids thanks to sticker-than-expected services inflation. The data printed above the BoE’s 5.3% prediction, coming in at 5.7% instead, showing signs of sticky inflation.
James Smith, Developed Markets Economist at ING, commented: ‘Indeed at 5.7%, it’s now 0.4 percentage points above the Bank’s forecast from the May Monetary Policy Report. That all but confirms the BoE will keep rates on hold tomorrow. But it doesn’t necessarily change the game for August’s meeting.’
As such, Sterling enjoyed some modest support on Wednesday with the chance of an interest rate cut reduced to below 5% for Thursday’s upcoming interest rate decision.
US Dollar (USD) Flat amid Lull in Data
The US Dollar (USD) was trapped in a narrow range against the majority of its peers on Wednesday amid an absence of domestic data. Further undermining the ‘Greenback’ was an unclear market mood. As a safe-haven currency, mixed trading conditions further weighed on USD on Wednesday. Also stymieing the US Dollar was Tuesday’s underwhelming retail sales data. The latest index printed below expectations in May, coming in at negligible 0.1% rather than an expected 0.2%. This ramped up bets for a Federal Reserve interest rate cut, ultimately dampening US Dollar sentiment.
Paul Ashworth, Chief North America economist at Capital Economics, said: ‘Even a modest slowdown in consumption growth and consequently GDP growth too could be enough to tip a finely balanced Fed in favour of a rate cut in September.’
GBP/USD Forecast: BoE Interest Rate Cut in the Spotlight
Looking ahead, the primary catalyst of movement for the Pound US Dollar exchange rate for this week will likely be the Bank of England’s upcoming interest rate decision. No policy changes are expected during this month’s meeting, and with the UK general election on the horizon, the bank’s forward guidance will likely be limited, which may in turn disappoint GBP investors. Turning to the US Dollar, the US will release its latest initial jobless claims for the week ending June 15 on Thursday which is forecast to slip from 242,000 people to 235,000 people for this reading. Should the data print as expected and confirm a slowdown in those seeking unemployment, this could lend the ‘Greenback’ some modest support towards the end of the week.
This content was originally published on ExchangeRates.org.uk
