Pound US Dollar (GBP/USD) Exchange Rate Retreats from One-Year High

Pound US Dollar (GBP/USD) Exchange Rate Relinquishes Gains

(Updated 16:35, 10/05/23) The Pound US Dollar (GBP/USD) exchange rate has shed its earlier gains, having previously jumped to a one-year high following cooler US inflation data.

The Pound (GBP) was unable to sustain its upside, with the GBP/USD rate succumbing to profit-taking.

Meanwhile, the US Dollar (USD) seemed to have entered oversold conditions after the softer inflation rate reading sparked a selloff.

At the time of writing, GBP/USD is trading at around $1.2615 having earlier hit a one-year high of $1.2679.

Attention is now firmly on the Bank of England (BoE) interest rate decision tomorrow. Could hints of future rate hikes boost the Pound US Dollar pair?

Original article continues below:

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

(Updated 14:00, 10/05/23) The Pound US Dollar (GBP/USD) exchange rate surged higher this afternoon as lower-than-forecast US inflation data saw the ‘Greenback’ slump.

Headline inflation unexpectedly eased in April, cooling from 5% to 4.9%. Meanwhile, core inflation also slowed down from 5.6% to 5.5%, as forecast.

Following last week’s dovish interest rate decision from the Federal Reserve, today’s CPI has further dampened expectations of more Fed rate hikes. This has sent the US Dollar (USD) sharply lower.

The Pound (GBP) has managed to capitalise on USD’s weakness as markets bet on a Bank of England (BoE) interest rate rise tomorrow.

GBP/USD has, at the time of writing, just hit a one-year high. Sterling could now suffer some profit-taking, although it may be able to retain most of its gains.

Original article continues below:

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

The Pound US Dollar (GBP/USD) exchange rate wavered in a narrow range this morning as markets brace for the latest US inflation rate reading.

At the time of writing, GBP/USD is trading at around $1.2617, having wobbled sideways through most of the morning.

US Dollar (USD) Fluctuates Ahead of Inflation

The US Dollar (USD) is experiencing some volatility this morning, fluctuating in a tight range against the Pound (GBP), as investors seem unsure ahead of the US inflation rate reading later this afternoon.

Last week, the Federal Reserve hinted that it may be at the end of its hiking cycle. Whether or not the Fed raises interest rates again will be dependent on the data, so this afternoon’s inflation release could be a key factor.

Meanwhile, a risk-averse market mood is lending some support to the safe-haven US Dollar. Equity markets are in the red today as concerns over slowing global growth, the US banking crisis, and the deadlock over the US debt ceiling all worry investors.

This downbeat mood is giving the safer ‘Greenback’ a lift, but the skittishness ahead of the US inflation data so far seems to be capping any upside for USD. As a result, the American currency is trading erratically.

Pound (GBP) Propped Up by BoE Bets

At the same time, the increasingly risk-sensitive Pound is resisting losses against the safer US Dollar, despite the risk-off market mood, as investors continue to bet on another interest rate rise from the Bank of England (BoE) at tomorrow’s meeting.

UK inflation remains stubbornly high, having repeatedly printed above forecasts. It is currently at 10.1% – more than double the 5% inflation rate in the US.

Against this backdrop, some analysts believe the BoE will press ahead with multiple further interest rate rises. A quarter-point hike at tomorrow’s meeting is a near certainty.

Expectations that the bank will hike rates and perhaps leave the door open to further increases are supporting the Pound today, keeping it afloat despite the downbeat market mood.

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

This afternoon could bring significant movement amid the publication of the US consumer price index.

Economists expect headline inflation to have held at 5% last month and core inflation to have ticked lower from 5.6% to 5.5%. If the data prints as forecast, indicating that underlying inflation is continuing to ease, the US Dollar could soften.

More notable movement will likely follow if there are any surprises in today’s CPI. Signs that US inflation is stickier than anticipated could boost Fed rate rise bets, thereby driving USD higher. Conversely, if price pressures cool faster than forecast, the ‘Greenback’ could tumble.

As for the Pound, the UK currency may face thin trading conditions though today’s session. This could leave GBP/USD to be driven by the ‘Greenback’.

GBP traders are likely waiting for the BoE decision tomorrow, which could add to the volatility in the Pound US Dollar pair.

Samuel Birnie

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