Pound US Dollar (GBP/USD) Exchange Rate Remains Weak as US Core PCE Cools
(Updated 14:01 , 27/01/2023) The Pound US Dollar exchange rate is falling lower this afternoon, following the release of December’s US core PCE price indexes.
The data printed in line with forecast, with the monthly reading increasing by 0.3%. The yearly reading printed at 4.4%, the slowest increase in 14 months.
The data appears to show signs that inflation is beginning to cool in the US, which has kept the ‘Greenback’ level. Investors may begin to readjust expectations of future tightening from the Federal Reserve, which could be capping USD gains.
The Pound remains on the backfoot, and may be being further capped by a cautious market mood.
At the time of writing, GBP/USD is trading around US$1.2374, a decline of around 0.4% from the morning’s rates.
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Pound US Dollar (GBP/USD) Exchange Rate Falls as Investors Anticipate US Core PCE Data
The Pound US Dollar (GBP/USD) exchange rate is weakening this morning, as USD investors await the latest core PCE data.
At the time of writing, GBP/USD is trading around US$1.2385, a decline of roughly 0.3% from the morning’s opening rates.
US Dollar (USD) Steadies as Investors Anticipate Core PCE Data
The US Dollar (USD) is off to a calm note this morning, with investors anticipating the latest core PCE data this afternoon.
The core PCE price index is the Federal Reserve’s preferred gauge of inflation. December’s yearly data is expected to show a fall from 4.7% to 4.4%, while the monthly data is forecast to increase by 0.3%.
If it prints as forecast, it could prompt bets for further rate hikes from the Fed, despite the insistence that they may begin to wind down.
Adding support to USD this morning could be an uptick in US Treasury bonds. At the time of writing, the 10 year bond is on a modest uptick.
However, a risk-on market mood could be capping the ‘Greenback’s upside, as investors seek less stable investment opportunities.
Pound (GBP) Weakens Despite Hunt Alluding to Growth Plans
The Pound (GBP) is weakening this morning, as the UK’s economic outlook remains downbeat. Furthermore, a speech from the UK Chancellor Jeremy Hunt failed to provide much optimism to investors.
In his speech, Hunt outlined the UK government’s vision for the UK economy and outlined pillars for UK economic growth. Despite this, Hunt reiterated that concrete plans would come in the next budget in March.
Hunt, however, did state that halving inflation remained a core goal for the UK government. With markets currently expecting a 50bps rate hike from the Bank of England (BoE) next week, investors appeared to be unmoved.
Elsewhere, thin liquidity pushed focus towards other domestic headlines in the UK. This morning, reports began to circulate that the HS2 railway project may not run to London. The reports stated that the project had run substantially over budget, which may have soured sentiment towards Sterling.
Pound US Dollar (GBP/USD) Exchange Rate Forecast: Interest Rate Decisions Take Stage
Looking ahead to next week for the Pound (GBP), the spotlight is on the Bank of England’s interest rate decision. With the BoE currently under pressure to control the levels of inflation in the UK, markets are anticipating a 50bps rate hike.
If this prints as forecast on Thursday, GBP may strengthen. However, if the monetary policy committee seems split on what to do next, it could weigh on Sterling. While inflation may be easing in the UK, it remains over five times the BoE’s target rate. As such, the BoE may have to stay the course with tightening and move towards smaller hikes in the future or even holding the rate.
The key driver for the US Dollar (USD) is likely to be the Federal Reserve’s interest rate decision. Coming on Wednesday evening, the Fed is expected to deliver a softer hike of 25bps, marking a slowdown in tightening. If this occurs, USD may weaken as the Fed shifts to a dovish outlook.
Ahead of the Fed’s interest rate decision, JOLTs job openings for December are due to print, alongside January’s ISM manufacturing PMI. The Job opening figures are forecast to fall to 9.5million, while the manufacturing index is forecast to fall to 48.2.
The JOLTs data could point to a cooling labour market, which may further dissuade aggressive rate hike bets and weaken the US Dollar. Similarly, the manufacturing index pointing to a contraction could weigh on the ‘Greenback’.