Pound US Dollar (GBP/USD) Exchange Rate Soars to Fresh Ten-Month High following US Inflation

Pound US Dollar (GBP/USD) Exchange Rate Rallies amid USD Selloff

(Updated 16:30, 28/4/23) The Pound US Dollar (GBP/USD) exchange rate surged higher this afternoon, hitting a fresh ten-month high, after the latest US inflation data sparked a selloff in the US Dollar (USD).

The ‘Greenback’ had gained ground through much of the day, thanks to rising expectations of another interest rate rise from the Federal Reserve.

However, USD tanked following the latest core PCE price index – the Fed’s preferred gauge of inflation – even though the data pointed to persistent inflationary pressures.

The headline index eased more than expected, dropping from 5.1% to 4.2%, versus predictions of 4.5%. However, the core rate came in above forecasts of 4.5% to print at 4.6%, marginally down from February’s upwardly revised 4.7%.

USD bulls seemed disappointed with the data. After hotter-than-expected Q1 price data yesterday, USD investors may have been hoping that the PCE price index would surprise to the upside.

At the time of writing, GBP/USD was trading at around $1.2567, up 0.6% on the day.

Original article continues below:

Pound US Dollar (GBP/USD) Exchange Rate Declines amid Fed Bets and Risk-Off Mood

The Pound US Dollar (GBP/USD) exchange rate fell this morning as risk aversion and Federal Reserve rate rise bets boosted the US Dollar (USD).

At the time of writing, GBP/USD was trading at around $1.2459, down more than 0.3% on the day.

US Dollar (USD) Rises on Fed Bets and Risk-Averse Mood

The US Dollar is strengthening today as a downbeat market mood sees investors flocking to the safe-haven currency. Federal Reserve rate hike bets are also underpinning the ‘Greenback’.

Both the Fed bets and the risk-off impulse come following the US GDP data yesterday. A sharper-than-forecast slowdown in the world’s largest economy rattled investors, who became concerned about a global downturn this year.

Meanwhile the latest raft of data releases also revealed that price pressures were more persistent than expected, raising the likelihood that the Fed will raise interest rates next month. Market odds for another rate hike rose from around 72% to 84%, and they are currently just shy of 88%. This is lifting the US Dollar today.

Pound (GBP) Subdued amid Lack of Data

Meanwhile, the Pound (GBP) is lacking support amid an absence of UK economic data and a risk-off market mood.

Along with the softer US GDP data yesterday, Eurozone GDP missed forecasts this morning. The bloc’s economy expanded by a meagre 0.1% in the first three months of 2023, rather than the expected 0.2%.

In addition, a fresh wave of deadly Russian strikes in Ukraine has contributed to the anxious tone in markets.

With the market mood firmly downbeat, traders are avoiding the riskier Pound in favour of the safer US Dollar.

GBP/USD Exchange Rate Forecast: US Inflation to Trigger Volatility?

Looking ahead, the US core PCE price index this afternoon could cause significant movement in the Pound US Dollar exchange rate. The core price index is the Federal Reserve’s preferred measure of inflation. As such, investors will be using it to gauge the likelihood of more interest rate rises from the US central bank.

Economists expect core prices to have risen by 0.3% month on month in March, matching the previous month’s rise. On a yearly basis, the index is set to ease marginally from 4.6% to 4.5%.

This could indicate that inflationary pressures remain persistent, which may necessitate more hikes from the Fed. Such a result could boost the US Dollar.

However, recent inflation releases have missed forecasts. If today’s data prints lower than expected, USD could drop sharply.

Meanwhile, UK data remains thin on the ground, so Sterling may be driven by risk appetite.

Samuel Birnie

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