GBP/USD Exchange Rate Stable on Dovish Fed Expectations
The Pound Sterling to US Dollar (GBP/USD) exchange rate is edging higher this morning, as expectations of a rate cut from the Federal Reserve this month continue to hang over the ‘Greenback’.
At the time of writing the GBP/USD exchange rate is trading at $1.2545 this morning, with the pairing trading slightly below the weekly high struck on Thursday.
US Dollar (USD) Subdued as Investors Shrug off US CPI Figures
The US Dollar (USD) is struggling to find support this morning as Federal Reserve rate cut expectations remain elevated, despite yesterday’s stronger-than-expected US CPI reading.
Data released on Thursday revealed a surprise rise in core inflation in the US last month as it climbed from 2% to 2.1%.
However the CPI release has failed to shake expectations that the Fed could begin a round of rate cuts later this month, something which continues to limit the appeal of the US Dollar.
Some analysts suggest that it’s odd that the Fed would seek a rate cut at a time when inflation is rising, speculating that the Fed could being influenced by the White House, after President Trump repeatedly criticised the US central bank for keep rates too high.
Ulrich Leuchtmann, the head of currency research at Commerzbank, suggests:
‘Cutting interest rates when inflation data is weakening makes sense, but signalling a dovish stance when inflation is rising is a bit weird and suggests there are political pressures weighing on the Fed.’
Whatever the reason, a rate cut from the Fed now looks almost inevitable this month, something which could limit the upside potential of the US Dollar for the foreseeable future.
Brexit Uncertainty Continues to Drag on the Pound (GBP)
At the same time, the Pound’s (GBP) gains against the US Dollar (USD) this morning remain tempered somewhat by ongoing political uncertainty in the UK.
With Boris Johnson’s path to Number 10 appearing inevitable, GBP investors are growing increasingly concerned by the prospect of a no-deal Brexit, given his commitment to leaving the EU in October ‘come what may’.
Giving the heightened risk of a no-deal Brexit investors are unsurprisingly reluctant to make any bullish bets on the Pound.
GBP/USD Exchange Rate Forecast: Slowing UK Wage Growth to Drag on Sterling?
Looking ahead to next week’s session, movement in the Pound to US Dollar (GBP/USD) exchange rate looks likely to be driven by the release of the UK’s latest employment report.
This could see Sterling trend lower in the first half of the week if domestic wage growth slowed in May as some economists suspect.
The employment data will be quickly followed by the release of the UK’s CPI figures, where a stable inflation reading last month is unlikely to provide much support to GBP exchange rates given the Bank of England’s increasingly dovish outlook on monetary policy.
Meanwhile, for USD investors the focus will be on the publication of the latest US retail sales figures, with the US Dollar potentially coming under pressure if sales growth slowed as expected in June.