Pound US dollar (GBP/USD) firms amid hotter-than-forecast UK CPI
The pound US dollar (GBP/USD) exchange rate is edging higher this morning as the UK’s latest inflation data muddies the water surrounding Bank of England (BoE) interest rate cut expectations.
At the time of writing the GBP/USD exchange rate is trading at around $1.2476, up approximately 0.4% from this morning’s opening rate.
Pound (GBP) strengthens as inflation beats forecasts
The pound (GBP) is gaining ground against its rivals this morning as UK inflation prints warmer-than-forecast.
Headline inflation eased to 3.2% in March, beating expectations of 3.1%, though falling for a second consecutive month and reaching its lowest level since September 2021. The ONS attributed the stickier-than-forecast figure to upward impacts from rising fuel prices, while food inflation hit a two-and-a-half year low, driving simultaneous inflationary slowdowns.
Similarly, core inflation dipped to a twenty-seven-month low of 4.2%, though beat forecasts of 4.1%.
The data has caused a slight stir in global markets this morning, as investors consider the possibility of deferred Bank of England (BoE) interest rate cuts amid warmer-than-anticipated inflation
Yael Selfin, Chief Economist at KPMG UK, explains:
‘Oil prices have rallied over the past month which has led to an increase in prices at the pump for consumers. Also, the hike in the National Living Wage could potentially contribute to persistence in services inflation which remains elevated.
Today’s data are unlikely to move the needle for the Bank of England. We expect inflation to return to target later this spring, which raises the prospect of interest rate cuts from June onwards.’
GBP may continue to garner investor interest as markets digest this morning’s weighty release, though diverging BoE rate cut expectations could see Sterling’s gains limited as the session progresses.
US dollar (USD) subdued following ‘greenback’ rally
The US dollar (USD) is facing headwinds this morning as market risk dynamics continue to drive the safe-haven currency’s movement.
Though the ‘greenback’ continues to waver near a five-month high, markets remain wary of escalating tensions in the Middle East. Concerns that further conflict drive inflationary pressures sees investors favouring USD’s riskier peers this morning amid an ongoing spell of anxious trade.
Amid the firmly upbeat sentiment, hawkish commentary from Federal Chair Jerome Powell failed to lift the US dollar.
Powell stated:
‘The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence.’
Though Powell continued to push back against imminent monetary loosening off the back of last week’s notably hot CPI, markets were largely unmoved as cheery trade undermined the safe-haven USD’s upside potential.
Pound US dollar exchange rate forecast: Fed commentary to boost USD?
Looking ahead, a data-light afternoon may bring Fed speeches into focus. Policymakers Loretta Mester and Michelle Bowman are both due to speak tonight. Any hawkish guidance could serve to lift the ‘greenback’ as markets dial down their interest rate cut expectations.
For the pound, unfolding market response to this morning’s CPI will likely be the core driver of Sterling sentiment. GBP exchange rates may continue to trend higher, should markets defer their interest rate cut bets.