Pound US dollar (GBP/USD) subdued ahead of US CPI
The pound US dollar (GBP/USD) exchange rate is trading without a clear direction, ahead of market moving US inflation data due to print this afternoon.
At the time of writing the GBP/USD exchange rate is trading at around $1.2690, virtually unchanged from this morning’s opening rate.
US dollar (USD) wavers prior to CPI print
The US dollar (USD) is trapped in a narrow range ahead of this afternoon’s inflation reports.
In the meantime, investors appear reluctant to place any aggressive bets on the ‘greenback’ prior to potentially significant market volatility later today.
While markets initially priced in 150bps of interest rate cuts from the Federal Reserve at the start of 2024, bets have fallen to 60bps of cuts for the remainder of the year. This marks the lowest expectation since October 2023, as continually strong US data defers rate cut speculation.
However, economists at MUFG Bank noted that markets could be wary of a potentially weaker inflation print, following recent upside surprises.
The bank stated:
‘After two upside surprises, there is an understandable caution over a potential weaker print that would quickly see June rate cut expectations increase again. But there also must be more to this reluctance than the imminent CPI release.’
Further stymieing the safe-haven USD’s movements this morning is an improving appetite for risk, which leaves the ‘greenback’ on the defensive against its riskier rivals.
Pound (GBP) wavers amid data lull
An ongoing absence of notable UK releases leaves the pound (GBP) to trade without a clear direction this morning.
Meanwhile, Britain’s largest supermarket chain has signalled that the UK’s cost-of-living pressures are beginning to significantly ease, enabling lower prices as food inflation cools. The assertion aligns with recent data from the British Retail Consortium (BRC), showing UK shop inflation to be at its lowest point in two years.
Ken Murphy, CEO of Tesco, said:
‘Inflationary pressures have lessened substantially, however we are conscious that things are still difficult for many customers.’
Further signs that UK inflation is moving rapidly towards the Bank of England’s (BoE) 2% target rate could see a strengthening case for June rate cuts further stifle the pound as the session progresses.
Pound US dollar exchange rate forecast: US inflation to lift the ‘greenback’?
Looking ahead, the hotly anticipated headline CPI rate is due for release in the US. Economists expect the CPI to have risen to 3.4% in March, warming from the previous month’s 3.2%. Should the data print as forecast, signs of stubborn US inflation will likely see markets further dialling back their interest rate cut expectations, which could see USD rally.
Alternatively, if the data falls below expectations, the US dollar may become a less favourable investment choice this afternoon.
Investors will also be eager to assess the Federal Reserve’s forward guidance, with the FOMC’s latest minutes due for release this evening. Any hawkish commentary may further lift USD amid signs that continually restrictive policy lies ahead.
For the pound, a lack of notable UK releases may see the increasingly risk-sensitive currency left vulnerable to market sentiment. Any cheery trade could see GBP firm against its safe-haven rivals, while a gloomy mood may leave Sterling on the defensive.