Pound US Dollar (GBP/USD) exchange rate subdued in quiet trade
The Pound US Dollar (GBP/USD) exchange rate is trapped in a narrow range this morning as both UK and US economic data releases are in short supply today.
At the time of writing, GBP/USD is trading at around US$1.2738, showing little movement from the morning’s opening rates.
Pound (GBP) rangebound ahead of BoE rate decision
The Pound (GBP) is trading sideways against the majority of its peers this morning amid an absence of macroeconomic data.
GBP investors are likely holding off placing any aggressive bets today as they brace for the Bank of England’s (BoE) interest rate decision later in the week.
The BoE is widely expected to leave interest rates on hold again this month, leaving any resulting movement in Sterling to be driven by the bank’s outlook on policy.
If the BoE pushes back on speculation it could begin cutting interest rates from June, it could provide a boost for the Pound.
US Dollar (USD) hobbled by risk-on flows
The US Dollar (USD) is treading water this morning as an upbeat market mood is sapping demand for the safe-haven ‘Greenback’.
USD investors are also wary in advance of the Federal Reserve’s impending interest rate decision.
Recent US inflation data has prompted markets to dial back their interest rate cut speculations.
Speaking on the recent domestic inflation data, Jeremy Schwartz, Senior US Economist at Nomura Securities, said:
‘Two months (of higher inflation readings) is too soon to declare that all is lost, but it certainly raises the risk that you have a little bit more of an inflation problem, and in that case it makes sense to be cautious. You have to consider the possibility that it will take a longer period of restrictive policy.’
Despite this, the majority of investors still see the Fed delivering an interest rate cut in June, and USD investors will be eager to see if this sentiment has any traction within the bank.
Should the central bank hint that its restive policy may remain in play for longer, this may see USD exchange rates surge.
GBP/USD exchange rate forecast: UK inflation to drag on the Pound?
Looking ahead, while the Fed and BoE’s rate decisions will act as the main catalyst of movement in the Pound US Dollar exchange rate this week. The release of the UK’s consumer price index could infuse some volatility in the meantime.
The CPI figures are expected to report UK headline and core inflation cooled sharply in February. A rapid cooling could support the Office for Budget Responsibility’s (OBR) forecasts that inflation will fall to 2% in the second quarter.
This in turn will bolster expectations for the BoE to start cutting interest rates, and could potentially overshadow any attempts by the central bank to convince investors that it is still some way off its first interest rate cut.
Meanwhile the US Dollar may be influenced by the Bank of Japan’s (BoJ) interest rate decision overnight. As an expected rate hike could bolster the Japanese Yen (JPY) at the expense of USD exchange rates.