Pound Sterling to US Dollar Exchange Rate Forecast: US Inflation Report Could Shift Direction of GBP/USD

Pound to US Dollar (GBP/USD) Exchange Rate Little Affected by Wednesday’s US Data

UPDATE: Wednesday’s American session saw the publication of the latest US PPI and wholesale inventories data, with most of the prints beating expectations.

However, the Pound Sterling to US Dollar (GBP/USD) exchange rate’s movement was largely unaffected by the data as investors anticipated more important stats due on Thursday.

For now, US Dollar (USD) investors are unlikely to make any shifts in stance on the currency until Thursday’s US inflation report is published.

GBP/USD Weakens in the Face of Ongoing Trade Uncertainty

UPDATE: The Pound to US Dollar (GBP/USD) exchange rate continued to edge lower during Wednesday’s European session, as trade tariff uncertainty boosted the safe haven US Dollar (USD).

Analysts and investors are becoming more concerned that the tit-for-tat in the US and China trade war is nearing a point of no return.

Economists continue to warn that a potential trade war could have a negative impact on the US economy, which has limited the US Dollar’s safe haven demand.

Pound to US Dollar (GBP/USD) Exchange Rate Remains Tight despite Trump’s New Trade Tariffs

Due to more sturdiness in Pound (GBP) trade since Tuesday, the Pound Sterling to US Dollar (GBP/USD) exchange rate has been able to avoid losses despite stronger demand for safe haven currencies like the US Dollar (USD) on Wednesday.

After opening the week at the interbank rate of $1.32, GBP/USD briefly climbed to a three-week-high of $1.33 on Monday but was knocked lower by UK political fears.

With those political jitters fading since Tuesday, GBP/USD has edged higher again – but at the time of writing remained lower than the week’s opening levels and has been trending in the region of $1.32.

Sterling struggled to put in a stronger recovery, as markets found the US Dollar more appealing following Tuesday’s news of fresh US trade tariffs against China.

As the US-China trade war escalated, the Pound’s gains against the safe haven US Dollar were limited.

Pound (GBP) Exchange Rate Climbs on UK Data and Calmed Political Outlook

The Pound (GBP) is still under heavy pressure against major rivals due to Brexit uncertainties and mixed UK data, but the worst of this week’s UK political and Brexit fears have faded and offered the Pound some respite.

Monday’s news of high-profile UK government members resigning from their Cabinet roles left investors worried that ‘hard Brexit’ advocate Conservatives may attempt to launch a vote of no confidence against UK Prime Minister Theresa May.

However, following a lack of fresh developments on Tuesday, political analysts and market participants increasingly perceived Theresa May’s position as safe for now, helping the Pound to recover recent losses.

On top of calming political jitters domestically, the Brexit outlook improved slightly when EU Chief Negotiator Michel Barnier indicated that around 80% of a UK-EU Brexit deal had been agreed to.

Concerns of a potential hard Brexit have faded slightly, but investors remain anxious about the lack of clarity and certainty for businesses amid the Brexit process – particularly after the latest UK growth data reminded investors of the importance of Britain’s services sector.

US Dollar (USD) Exchange Rates Steady on Risk-Aversion and Solid US Ecostats

The Pound to US Dollar (GBP/USD) exchange rate’s recovery since Tuesday has been limited, as demand for the US Dollar (USD) improved again following US President Donald Trump’s latest trade tariffs announcement.

On Tuesday night, Trump significantly escalated the US-China trade war by stating there would be a 10% tariff on $200bn more of Chinese goods, on top of the previous tariffs that came into effect last week.

The news was quickly met with criticism from China, who said that it would counter in some manner.

With markets jittery over trade again, safe haven currencies like the US Dollar have strengthened. The US Dollar was also supported by Tuesday’s stronger-than-expected US business optimism and JOLTs job opening results.

USD’s strength was slightly limited though, as analysts continue to warn the US-China trade war is likely to have a negative impact on the US economy too.

According to Cailin Birch from the Economic Intelligence Unit, the US could be in for some notable economic damage:

‘The proposed list of $200bn worth of goods includes a number of industrial inputs and components that would squeeze US companies’ supply chains and ultimately raise consumer prices.’

Pound to US Dollar (GBP/USD) Forecast: US Inflation Remains in Focus

The Pound to US Dollar (GBP/USD) exchange rate’s movement is likely to remain relatively limited and range bound, with geopolitics weighing on both currencies and limiting their appeal.

Sterling (GBP) remains unappealing due to uncertainties regarding Brexit fallout and its potential impact on businesses, while the US Dollar’s (USD) strength is limited by concerns about how the US-China trade war could affect the US economy.

Another factor weighing on the US Dollar since last week though, is concerns about the strength of US price pressures.

Last week’s US wage growth results fell short of expectations, worsening the US wage inflation outlook and dampening Federal Reserve interest rate hike bets.

As a result, US Dollar investors are greatly anticipating the publication of June’s US Consumer Price Index (CPI) report on Thursday. US inflation is forecast to have improved year-on-year.

If the US inflation rate fails to improve or weakens instead, investors will become more concerned about US price pressures and the Pound to US Dollar (GBP/USD) exchange rate could more easily advance towards the end of the week.

Josh Ferry Woodard

After leaving university in 2011 Josh briefly worked as a currency analyst in the South West of Cornwall. Josh continued monitoring the currency markets and publishing exchange rate analysis after moving to London in 2012, with a particular focus on the impact of economic and political stimuli on forex. Josh was a regular contributor to The Telegraph’s weekly currency feature for several years.

Contact Josh Ferry Woodard