Pound to US Dollar (GBP/USD) Exchange Rate Bounces Back as US Inflation Disappoints

Pound US Dollar (GBP/USD) Exchange Rate Benefits from Mixed US Inflation Data

The disappointing nature of April’s US consumer price index data helped to boost the Pound to US Dollar (GBP/USD) exchange rate ahead of the weekend.

Although the headline annual inflation figure strengthened as forecast this was contrasted by weaker-than-expected monthly and core readings.

This suggests that price pressures within the US economy are not as solid as investors might like, potentially giving the Federal Reserve some pause for thought.

If inflationary pressure weakens further this could undermine the case for the Fed to pursue a more aggressive pace of monetary tightening, to the detriment of US Dollar (USD) exchange rates.

Revised BoE Growth Forecasts Weigh Heavily on GBP/USD Exchange Rate

In the wake of the Bank of England’s (BoE) decision to lower its growth forecasts in the latest quarterly Inflation Report the Pound to US Dollar (GBP/USD) has been biased to the downside.

With the BoE looking less likely to raise interest rates in the near future the mood towards the Pound (GBP) has soured.

As confidence in the outlook of the UK economy was also dented this left investors with little incentive to buy into the Pound, leaving GBP exchange rates on a generally weaker footing.

Even so, technical resistance soon helped the GBP/USD exchange rate to recover some of its losses in the absence of any particularly supportive UK data.

Pound US Dollar (GBP/USD) Exchange Rate Volatility Forecast on UK Wage Growth Data

UK unemployment and wage growth data could offer the Pound to US Dollar (GBP/USD) exchange rate a more solid rallying point this week.

If domestic wage growth accelerates this would give BoE policymakers fresh cause for optimism, as higher wages would encourage greater consumer spending.

As high levels of household spending have helped to shore up the UK economy over the last year a stronger showing here could give GBP exchange rates a strong boost.

On the other hand, any dip in the average weekly earnings data is likely to weigh heavily on demand for the Pound.

Unless consumers start to see a stronger improvement in wages the upside potential of GBP exchange rates will remain limited, particularly if Brexit-based uncertainty continues to cast a shadow over the domestic outlook.

Hawkish Fed Commentary to Restrain GBP/USD Exchange Rate

Commentary from Fed policymakers may also put pressure on the Pound to US Dollar (GBP/USD) exchange rate in the near term.

Any signs of greater hawkishness within the Federal Open Market Committee (FOMC) would give investors fresh incentive to buy into the US Dollar.

As forecasts point towards an easing in April’s advance retail sales figure, though, USD exchange rates may struggle to maintain their recent bullish trend.

Unless the world’s largest economy continues to demonstrate robustness the mood towards the US Dollar is likely to go off, especially in the face of increased market risk appetite.

Weaker housing market data or jobless claims figures could also offer a boost to the Pound to US Dollar (GBP/USD) exchange rate over the coming week.

Hannah Wilson

Contact Hannah Wilson