Pound US Dollar (GBP/USD) exchange rate sideways ahead of US CPI
The Pound US Dollar (GBP/USD) exchange rate is rangebound this morning, as investors await the afternoon’s US inflation data.
At the time of writing, GBP/USD is trading at around US$1.2741, showing little movement from today’s opening rates.
US Dollar (USD) muted ahead of inflation data
The US Dollar (USD) is trading largely sideways this morning, as focus shifts towards the afternoon’s consumer price index data.
Currently, markets anticipate that headline CPI will have accelerated to 3.2% in December. If this prints accurately, or above forecasts, it may lead to pared back Federal Reserve interest rate cut bets.
Markets have been pricing in rate cuts starting in March, as inflation continues to cool and the Fed aims for a ‘soft’ economic landing. If inflation appears to be heating up again, it could delay the starting gun for the Fed to unwind its monetary policy.
On the other hand, core inflation is forecast to have cooled from 4% to 3.8%. As this measures inflation and strips it of volatile products, this could be the focus for investors. This may not be enough of a slowdown for the Fed to take a dovish outlook.
Francesco Pesole, FX Strategist at ING, commented:
‘While we may not see a big jump in the dollar on a consensus CPI print, we suspect the combination of only modest core inflation declines and lingering labour tightness will prompt the Fed to push back on rate cuts more forcefully.’
Pound (GBP) propped up by cheery trade
The Pound (GBP) is being cushioned by an upbeat market mood this morning, despite a lack of other data impetus.
As an increasingly risk-sensitive currency, Sterling is able to remain afloat as investors shift away from safer currencies.
However, this same scarcity of data is likely preventing GBP exchange rates from gaining, or losing, ground against its rivals.
Exerting pressure on Sterling could be surprise forecasts from economists that inflation will cool to 2% by April. This would in turn spark bets that the Bank of England (BoE) may have to cut interest rates sooner than expected.
Pound US Dollar exchange rate forecast: UK GDP Expansion to Lift Sterling?
Looking ahead for the Pound, tomorrow brings the release of the latest UK GDP data. In November, the UK economy is expected to have grown by 0.2% over the previous month’s reading.
If this data prints in line with forecasts, the Pound could strengthen as it may assuage recession anxieties amongst GBP investors. However, any gains could be offset by expectations of a contraction of 0.1% in the three-month average.
For the US Dollar, the latest PPI data is due to print tomorrow. With producer prices expected to have increased by 0.1% in December, this may not be a large enough increase to prompt hawkish action from the Fed.
Elsewhere, risk appetite is likely to play a role in shaping the pairing. Due to the safe-haven nature of the ‘Greenback’, a shift towards bearish trade could weaken GBP/USD.