Pound US Dollar (GBP/USD) Exchange Rate Tumbles as Core PCE Beats Forecasts
(Updated 14:06 24/02/23)
The Pound US Dollar (GBP/USD) exchange rate is dropping today. The above-forecast reading of the core PCE price index, the Federal Reserve’s preferred measure inflation, may be pulling the pair lower.
January’s reading of the index printed an increase of 0.6%, well above the forecast rise of 0.4%. The data indicates that inflation may not be coming down as quickly as previously thought.
Markets are pricing in further interest rate hikes from the Federal Reserve off the back of the data. Traders are now anticipating a three further rate hikes from the Fed. This may in turn be contributing to GBP/USD’s losses today.
At time of writing the GBP/USD exchange rate is at around $1.1946, which is down roughly 0.6% from this morning’s opening figures.
Original article continues below:
Pound US Dollar (GBP/USD) Exchange Rate Trends Sideways amid Risk-Off Mood
The Pound US Dollar (GBP/USD) exchange rate is trading in a narrow range today. The pairing may be coming under pressure from a cautious market mood. Federal Reserve rate hike bets may also be capping gains for GBP/USD.
On the other hand, expectations of further interest rate increases from the Bank of England could be lending support to the pair today.
At time of writing the GBP/USD exchange rate was at around $1.2026, virtually unchanged from this morning’s opening figures.
US Dollar (USD) Seeing Limited Bets Ahead of PCE Data
The US Dollar (USD) is seeing limited bets today. The safe-haven ‘Greenback’ may be edging higher amid a cautious market mood. Investors may also be awaiting crucial inflation data late today.
USD could be finding support from persistent expectations of further rate hikes from the Federal Reserve. The surprise fall in jobless claims on Thursday pointed to a still-tight labour market. Alongside a rise in the GDP price index, the data placed further pressure on the Fed to push rates higher.
Speaking on the Fed’s potential forward policy, chief economist at FWDBONDS Christopher Rupkey said:
‘If the labor market is the light guiding the Fed’s path to bringing inflation under control, policymakers have some more work to do because growth remains positive and the demand for labor is strong.’
Pound (GBP) Bolstered by BoE Rate Hike Bets
The Pound (GBP) is gaining against its rivals today. GBP may be finding support from increased market bets on further policy tightening from the Bank of England.
Markets have continued to price in further interest rate increases from the BoE. The renewed optimism came after Thursday’s hawkish comments from central bank policymaker Catherine Mann.
Speaking at the Resolution Foundation in London, Mann said:
‘I believe that more tightening is needed, and caution that a pivot is not imminent. In my view, a preponderance of turning points is not yet in the data.’
Upbeat data earlier in the week may be adding to the positive sentiment surrounding GBP today. Private sector PMIs indicated a surprise return to growth in February. Investors took this as a sign that the UK may avoid a protracted recession.
GBP/USD Exchange Rate Forecast: Will BoE Bailey Signal Further Rate Hikes?
Looking to later today for the Pound, a speech from BoE policymaker Silvana Tenreyro could dent confidence in Sterling if she maintains her dovish stance.
A speech from BoE Governor Andrew Bailey next week could have the opposite effect on GBP, however. Bailey’s speech on Wednesday could signal further rate hikes from the central bank.
On Friday, the final reading of the UK’s services sector PMI could provide further positive impetus for the Pound. Services sector performance is expected to have returned to growth in February.
For the US Dollar, the latest reading of the core PCE price index later today could prompt renewed Fed rate hike bets if it prints as forecast. The Fed’s preferred measure of inflation is expected to point to persistent inflationary pressures.
Next week for USD, a forecast sharp downturn in January’s durable goods orders on Monday could dent confidence in the US economy. This could see USD slip if the data prints as expected.
On the other hand, the latest private sector PMIs on Wednesday and Friday could help to stem any losses for USD. Next week’s data is to indicate positive performance across all US private sectors.