Pound US Dollar (GBP/USD) wavers ahead of key data
The Pound US Dollar (GBP/USD) exchange rate is rangebound this morning amid a lack of market moving data and an increasing appetite for risk.
At the time of writing the GBP/USD exchange rate is trading at around $1.2684, virtually unchanged from this morning’s opening rate.
Pound (GBP) wavers amid shifting rate cut bets
The Pound (GBP) is muted this morning as notable economic data remains sparse.
However, signs of easing UK inflation are serving to limit the increasingly risk-sensitive Pound’s upside potential this morning amid a spell of cheery trade.
A report from the British Retail Consortium (BRC) this morning announced that UK shop inflation has fallen to 2.5% in February, hitting its lowest point since March 2022, as retailers seek to revive domestic consumer activity.
Helen Dickinson, Chief Executive of the British Retail Consortium, said:
‘Food prices fell month-on-month with drops in fresh food including meat, fish and fruit. This was driven by easing input costs for energy and fertiliser while retailers competed fiercely to keep prices down.’
While easing prices could serve to soften the effects of the UK’s persistent cost-of-living crisis, cooling shop inflation could reinforce the case for reduced Bank of England (BoE) interest rates.
Yet BoE reluctance to offer details about the timings of potential rate cuts will likely see Sterling changeable ahead of further policymaker guidance this afternoon.
US Dollar (USD) rangebound ahead of key data
The US Dollar (USD) is trading without a clear direction this morning ahead of market moving data, due for release later today.
In the meantime, investors appear reluctant to place any aggressive bets on the safe-haven ‘Greenback’ as upbeat trade permeates markets.
However, signs that the Federal Reserve could keep interest rates ‘higher for longer’ may keep USD afloat this morning.
According to the CME FedWatch Tool, the likelihood of further Fed rate holds remains high for the coming months, with odds of 99.5% that the central bank will keep rates at a twenty-three-year high in its March meeting.
Furthermore, analysts and economists have provided a significantly hawkish consensus in recent days.
Jim Bianco, Head of Bianco Research, told Bloomberg in an interview this week:
‘I was in the zero-to-two cut camp at the beginning of the year, and I’m closer to the zero camp — no rate cuts — for right now.’
Pound US Dollar exchange rate forecast: US durable goods orders to undermine the ‘Greenback’?
Coming up for the US, the latest durable goods orders are due to report a notable slump by 4.5% this afternoon. Should the data print as expected signs of decreased economic output throughout January may see USD falter, as the Fed faces renewed pressures to reduce its base rate.
On Wednesday, the core catalyst of ‘Greenback’ movement will most likely be the latest GDP data, reporting on the fourth quarter of 2023. Economists expect that the second estimate for that period will report a US economic expansion of 3.3%. While slightly lower than the third quarter’s 4.9%, continual economic resilience and growth could boost USD, and spark global market volatility.
In the UK, a speech from BoE hawk Catherine L Mann on Wednesday could attract investor interest amid a lack of impactful data releases. As one of only two rate-setters to vote for another rate hike during last month’s interest rate decision, Mann will likely continue to push back against monetary loosening.
Should her hawkish rhetoric convince markets that the central bank may maintain its restrictive stance towards monetary policy, the Pound could firm.