Pound US dollar (GBP/USD) exchange rate trades near two-month high

Pound US dollar (GBP/USD) muted amid downbeat market mood

(Updated 16:30, 22/05/24) The pound US dollar (GBP/USD) exchange rate is continuing to trade mostly flat moving into this afternoon’s European session.

Thanks to this afternoon’s risk-off flows, the US dollar (USD) is managing to firm against its peers ahead of the highly anticipated FOMC meeting minutes later this evening.

The increasingly risk-sensitive pound (GBP) is managing to stay afloat despite this afternoon’s cautious trade as the UK’s earlier inflation data is lending GBP exchange rates modest support.

At the time of writing, GBP/USD is trading at around $1.2732, virtually unchanged from today’s opening levels.

Original article continues below:

Pound US dollar (GBP/USD) exchange rate briefly strikes two-month high

The pound US dollar (GBP/USD) exchange rate leapt to a two-month high this morning following the release of the UK’s latest consumer price index. However, it has since surrendered most of its gains.

At the time of writing, GBP/USD is trading at around $1.2724, having retreated from a high of $1.2760 to remain close to this morning’s opening levels.

Pound (GBP) lifted by hotter-than-expected CPI

The pound (GBP) jumped higher against the majority of its peers this morning following the release of the UK’s latest inflation data.

In April, both core and headline inflation cooled less than expected, with core inflation easing from 4.2% to 3.9% rather than a more modest expectation of 3.6%, while headline inflation cooled from 3.2% to 2.3%, versus 2.1%.

Furthermore, the CPI revealed that UK service inflation, one of the Bank of England’s (BoE) most important indicators of inflation, also cooled less than expected, coming in at 5.9% rather than an expected reading of 5.4%.

The latest CPI has served to underpin Sterling sentiment this morning as the hotter-than-expected reading has seen markets scale back their interest rate cut bets for June.

James Smith, Developed Markets Economist at ING, commented:

‘[W]e think it does reduce the chances of a rate cut at June’s meeting, even though we’ll get another set of data before that decision…

‘Today’s data supports our long-held base case that the first rate cut will come in August, which offers the BoE an extra inflation print to be more confident about the underlying trend.’

While the pullback in BoE rate cut bets boosted the pound this morning, Sterling has since suffered some profit-taking and relinquished its gains.

US dollar (USD) flat ahead of FOMC meeting minutes

The US dollar (USD) is trapped in a narrow range against the majority of its peers this morning as a lack of US economic data in the first half of today’s session has seen the ‘greenback’ struggle to garner investor attention.

Furthermore, investors may be hesitant to place any overly aggressive bets this morning ahead of the Federal Reserve’s latest meeting minutes scheduled for release later today.

Following the central bank’s unexpectedly dovish tilt earlier in the month, the FOMC minutes will be closely examined for any further guidance on monetary policy and could undermine USD this evening should the minutes mirror the bank’s recently dovish consensus.

Pound US dollar exchange rate forecast: PMIs in focus

Looking ahead, the primary driver of movement for the pound US dollar exchange rate looking past the FOMC minutes will likely be the release of both the UK and US preliminary PMI data for May.

In the UK, service sector activity is expected to have cooled, which could put pressure on the pound. Meanwhile both the US manufacturing and service sector are expected to remain unchanged for this reading, potentially muting USD.

On Friday, the GBP/USD exchange rate could experience mixed movement as both UK retail sales and US durable goods orders are forecast to have fallen in the month of April.

Sarah Ebrahem

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