GBP USD Exchange Rate Slips Despite Underwhelming US Inflation Figures
(Updated 14:00, 30/7/21) The Pound US Dollar (GBP USD) exchange rate is trading with modest losses at $1.3951 this afternoon.
This pullback in the GBP USD exchange rate comes in spite of a weaker-than-expected core PCE price index, with the Federal Reserve’s preferred indicator for inflation printing at 3.5% in June against consensus estimates of 3.7%.
The accompanying US personal spending figures were more positive however, with consumer consumption jumping 1% in June, after previously contracting in May.
However, the main catalyst behind the drop in the GBP USD exchange rate appears to be the deterioration in market sentiment, which is buoying demand for the safe-haven US Dollar.
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GBP USD Exchange Rate Approaches Key Barrier of Resistance
The Pound US Dollar (GBP USD) exchange rate is on the rise again this morning as the recent USD selling bias appears to remain firmly in place.
At the time of writing the GBP USD exchange rate is trading at around $1.3964, up roughly 0.4% from this morning’s opening rate.
US Dollar (USD) Continues to Face Headwinds as a Result of Dovish Fed
The US Dollar (USD) is extended its losses against the Pound (GBP) this morning, as investors continue to shun the ‘Greenback’ in the wake of the Federal Reserve’s latest rate decision.
USD investors were left dismayed by the Federal Open Market Committee’s (FOMC) latest policy statement in which the US central bank signaled that it is still not ready to start tapering its bond purchases.
Fed Chair Jerome Powell struck a notably dovish tone in his accompanying speech as he suggested that the US economy is some way off the point at which the Fed can start considering tightening its monetary policy.
Powell’s cautious stance appeared to be vindicated on Thursday with the publication of the latest US GDP estimate, which reinforced the downside in the US Dollar, after printing well below expectations in the second quarter.
Pound (GBP) Buoyed Coronavirus Hopes
At the same time, the Pound continues to draw support from domestic coronavirus statistics, amidst the drop off in new cases over the past week.
Whilst daily cases have started to creep higher again, the seven-day average still shows a 37% decline in new infections.
This continues to underpin the GBP USD exchange rate, on hopes that previous fears that new cases could top 100,000 a day may have been overblown.
Also continuing to reflect positive on the Pound is optimism over Brexit, following the EU’s announcement earlier this week that it suspended legal action against the UK for its violation of the Northern Ireland protocol.
GBP USD Forecast: Upbeat US Personal Spending to Revive USD Demand?
Still to come this week we have the publication of the latest US Personal spending figures later this afternoon.
These could put some pressure on the GBP USD exchange rate if they report that spending began to rebound last month, after previously stalling in May.
Also, in focus for USD investors will be the accompanying PCE price index. While the Fed’s preferred indicator for inflation is expected to report price growth continued to climb in June, its impact on the US Dollar could prove limited in light of the Fed’s current stance on monetary policy.
Meanwhile, GBP investors may start to turn their focus to next week’s session, which will see the Bank of England (BoE) conclude its August policy meeting.
This could see the Pound relinquish some of its recent gains as the BoE’s is likely to emulate the Fed’s current dovishness and also shy away from any discussions about tapering its stimulus programme.