Pound US Dollar (GBP/USD) exchange rate muted despite cooling US core inflation
Article updated 16:35, 26/1/2024:
The Pound US Dollar (GBP/USD) exchange rate is trading narrowly this afternoon, following the latest US core PCE price index.
The Federal Reserve’s preferred gauge of inflation cooled more than expected in December, printing at 2.9%. As a clear downshift in core inflation, this prompted investors increase their bets on an imminent rate cut from the Fed.
However, the Pound is unable to press its advantage, leading to the flat trade seen this afternoon. This is likely down to a lack of data catalysts for GBP investors to utilise.
At the time of writing, GBP/USD is trading at around US$1.2723, showing little movement from today’s opening rates.
Original article continues below:
Pound US Dollar (GBP/USD) exchange rate ticks higher ahead of US core inflation data
The Pound US Dollar (GBP/USD) exchange rate is firming this morning, as investors await the latest US core inflation release.
At the time of writing, GBP/USD is trading at around US$1.2727, an increase of just below 0.2% from the morning’s opening rates.
US Dollar (USD) quiet ahead of core inflation data
The US Dollar (USD) is seeing a quiet start to today’s proceedings, as focus shifts to the afternoon’s core PCE price data.
As the Federal Reserve’s preferred inflation gauge, predictions of cooling core inflation may serve to undermine USD. If the rate cools from 3.2% to 3% as expected, it may further expectations of an imminent interest rate cut as inflation continues to slow.
Chris Turner, Global Head of Markets and Regional Head of Research for UK & CEE at ING, commented:
‘Decent growth and benign inflation support the thesis that the Federal Reserve can make monetary policy less restrictive in an orderly manner and that, if the US economy does experience a recession, it will be a mild one.’
However, this may not be a sizeable enough decrease for the Fed to consider cutting rates. In this instance, USD could gather pace later today as investors pare back their bets on a March rate cut.
Elsewhere, a moderately risk-on market mood may be adding additional pressure to the ‘Greenback’ today.
Pound (GBP) limited by minimal data
Due to a lack of market moving data, the Pound (GBP) is seeing muted trade this morning. However, due to the cautiously upbeat trading conditions, it is managing to remain cushioned against its rivals.
Ultimately, however, the Pound is likely to end this week’s session on a muted note due to the same absence of data.
The focus may shift towards the Bank of England’s (BoE) path forward. As inflation remains more of a burden on the UK than other territories, the expectation that the BoE will keep rates unchanged for longer may underpin GBP.
Pound US Dollar exchange rate forecast: lack of data to undermined GBP?
Looking ahead for the Pound, next week continues the recent lull in data releases, which may lead Sterling to trade narrowly.
Because of this, risk appetite is likely to be the predominant driver of movement for GBP exchange rates. Due to Sterling’s increasingly risk-sensitive nature, a shift towards downbeat trade could weaken it against safer assets.
The story is similar for the US Dollar, which looks set to begin next week’s session without much in the way of data.
However, as a safe-haven currency, a downbeat market mood could lift the ‘Greenback’ above its peers.
Continued analysis of the recent US data is likely to affect USD exchange rates too. Due to this afternoon’s core PCE price index, Fed rate cut bets may play a role in shaping sentiment towards the US Dollar.