Pound US dollar (GBP/USD) wobbles near two-month high despite hawkish Fed rhetoric

Pound US dollar (GBP/USD) wavers despite cautious Fed stance

(Updated 14:30, 21/05/2024) The pound US dollar (GBP/USD) exchange rate continued to trade without a clear direction throughout the afternoon amid an ongoing lack fresh data.

The US dollar wavered for much of the session as thin trading conditions and a mixed market mood stifled the safe-haven currency.

Elsewhere, continually hawkish commentary from Federal Reserve policymaker Raphael Bostic narrowly kept USD afloat.

Bostic struck a familiar chord in the afternoon as he continued to advocate for restrictive monetary policy, stating:

‘The Fed has to be cautious about the first rate move, may need to be later in order to not stoke pent-up exuberance for investment, other spending. We would rather wait longer for a rate cut to be sure inflation does not start to bounce around.

We are not in a hurry to cut rates, and want to make sure that policy easing is unambiguous.’

Meanwhile, improved UK growth forecasts from the International Monetary Foundation (IMF) buoyed the pound (GBP) against some of its major rivals.

The IMF commented:

‘With growth recovering faster than expected, the UK economy is approaching a soft landing, following a mild technical recession in 2023. CPI inflation has fallen faster than was envisaged last year and is projected to return durably to target in early 2025.’

However, ahead of the UK’s weighty inflation releases tomorrow morning, GBP remained relatively subdued as investors remained reluctant to place any aggressive bets.

At the time of writing, GBP/USD is trading at around $1.2714, virtually unchanged from today’s morning level.

Original article continues below:

Pound US dollar (GBP/USD) subdued near eight-week high amid lack of data

The pound US dollar (GBP/USD) exchange rate is fluctuating this morning amid a lack of macroeconomic releases in both the UK and USA.

At the time of writing the GBP/USD exchange rate is trading at around $1.2702, virtually unchanged from this morning’s opening rate.

Pound (GBP) stymied by easing grocery prices

The pound (GBP) is on the defensive this morning amid a lack of fresh UK data so far today.

In the absence of any macroeconomic releases, the latest retail data from insights group Kantar reports that grocery inflation has slumped to a two-and-a-half year low, reaching its lowest level since October 2021.

Fraser McKevitt, Head of Retail and Consumer Insight at Kantar, noted the gradual easing of grocery price inflation after a prolonged period of persistently high prices. Mckevitt said:

‘Typically, an inflation rate of around 3% is when we start to see marked changes in consumers’ behaviour, with shoppers trading down to cheaper items when the rate goes above this line and vice versa when the rate drops.

However, after nearly two-and-a-half years of rapidly rising prices, it could take a bit longer for shoppers to unwind the habits they have learnt to help them manage the cost-of-living crisis.’

The report comes ahead of tomorrow’s hotly anticipated consumer price index (CPI), which analysts are expecting to have significantly cooled in April, thereby confirming rapidly easing inflation in the UK.

US dollar (USD) wavers near multi-week lows ahead of Fed speeches

The safe-haven US dollar (USD) continues to waver near multi-week lows this morning amid a lack of fresh data and a mixed market mood.

Amid thin trading conditions, the latest Federal Reserve commentary serves to buoy the ‘greenback’ following an influx of policymaker commentary last night. Four prominent Fed rate-setters spoke, striking a united preference for monetary policy to remain restrictive for a longer period of time.

Vice Chair Fed Jefferson was amongst the hawkish voices last night, noting:

‘It is too early to tell whether the recent slowdown in the disinflationary process will be long lasting. The better reading for April is encouraging.’

A data-light session for the US dollar will likely see Fed speeches pulled into focus once again this afternoon, with a total of five policymakers, including the Fed Governor Christopher Waller, due to deliver an address.

Pound US dollar exchange rate forecast: UK inflation in focus

Looking ahead, the UK’s latest inflation data is due for release on Wednesday. Headline inflation is due to cool to 2.1% in April, dipping from 3.2% in the previous month. Similarly, core inflation is set to dip to 3.6% in April’s month-on-month reading, easing from 4.2% in March.

Should the data ease as forecast, falling within reaching distance of the central bank’s 2% target rate, surging BoE interest rate cut speculations could see GBP tumbles against its rivals.

Looking to the US, the publication of the Federal Reserve’s latest meeting minutes is due out tomorrow evening. While a hawkish Fed consensus and robust data has kept the ‘greenback’ afloat in recent months, any signs of policymaker divergence could see the US dollar stumble.

Alternatively, should the minutes indicate an ongoing preference for restrictive monetary policy amongst Fed rate-setters, USD may continue to recoup its recent losses.

Yasmine Arasteh

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