Pound US Dollar (GBP/USD) exchange rate muted ahead of data-heavy week

Pound US Dollar (GBP/USD) flat ahead of central bank speeches

The Pound US Dollar (GBP/USD) exchange rate is rangebound this morning amid a lack of fresh data and ahead of central bank commentary due later today.

At the time of writing the GBP/USD exchange rate is trading at around $1.2608, virtually unchanged from this morning’s opening rate.

Pound (GBP) wavers amid data lull

The Pound (GBP) is wobbling today with notable economic data in short supply this morning.

GBP investors seem reluctant to place any aggressive bets on Sterling before upcoming Bank of England commentary and notable economic updates.

Markets may look towards the latest UK employment data for signs of slowing wage growth, with the Chartered Institute of Personnel and Development (CIPD) warning of reduced UK hiring plans in its latest Labour Market Outlook.

Jon Boys, Senior Labour Market Economist for the CIPD, commented:

‘We’ve seen a sustained period of high wage growth in response to a tight labour market, and high inflation pushing up the cost-of-living. Pay growth has helped individuals but it leaves employers with a higher wage bill to cover.’

Confirmation of wage deflation in tomorrow’s average earnings report could sink GBP amid rising interest rate cut expectations, leaving Sterling muted in the interim.

US Dollar (USD) muted ahead of Fed commentary

The US Dollar (USD) is trading without a clear trajectory this morning amid a lack of data.

While Federal Reserve policymakers have offered an increasingly hawkish consensus in recent days, further pushback against rate cuts in the first half of the year may see the ‘Greenback’ firm overnight.

Following a recent influx of strong labour data and upbeat GDP, US economic resilience leaves the door open to further Fed hikes.

Steven Blitz, Chief US economist at GlobalData TS Lombard, said:

“They’re going to be glacial and take their time. They’re willing to say, ‘We don’t know, but we can afford to wait so we’re going to wait’.’’

However, in the meantime, as an increasing appetite for risk permeates global trade, the safe-haven USD’s movements are limited.

Pound US Dollar exchange rate forecast: US inflation to drive ‘Greenback’ volatility?

Looking ahead, a speech from Bank of England Governor Andrew Bailey could lift the Pound, should Bailey continue to advocate that interest rates must remain ‘higher for longer’ in the coming month.

Similarly, a speech from Fed policymaker Neel Kashkari may support the US Dollar. The Fed hawk is likely to reiterate recent statements, in which he claimed that only three to four interest rate cuts may be needed in the latter half of the year.

The latest US inflation data is due for release tomorrow and is likely to be the core catalyst of USD movement this week. Economists forecast that both headline and core inflation will have cooled in January’s year-on-year report. This may revive market expectations of looming interest rate cuts, serving to pressure the ‘Greenback’.

Also due tomorrow, the UK’s latest unemployment data could drive significant GBP volatility. Signs of cooling wage growth may pressure the Pound, calling the BoE’s increasingly hawkish narrative into question.

Yasmine Arasteh

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