Pound US dollar (GBP/USD) exchange rate trades below Wednesday’s highs on hawkish Fed
The pound US dollar (GBP/USD) exchange rate is trading narrow range this morning as the dust settles on the latest US inflation figures and Federal Reserve interest rate decision.
At the time of writing, GBP/USD is trading at around $1.2792, virtually unchanged from this morning’s opening levels, but down from the ten-month high struck on Wednesday.
US dollar (USD) underpinned by hawkish Fed
The US dollar (USD) is holding steady this morning after some particularly dramatic swings on Wednesday.
USD exchange rates nosedived yesterday afternoon after the latest US consumer price index reported a surprise cooldown in headline inflation and larger-than-expected drop in core inflation last month.
However, the ‘greenback’ was subsequently able to claw back a good portion of these losses as the Federal Reserve delivered its latest interest rate decision.
Although the Fed kept interest rates on hold at 5.5% last night, the accompanying press release revealed that the central bank had revised the future of its monetary policy.
Fed policymakers are now pencilling in just one interest rate cut this year, down from a previous estimate of three, following several months of persistent US inflation.
Anastassia Fedyk, assistant professor of finance at Haas Business School at the University of California Berkeley, commented:
‘They (the Fed) are signaling that in the future they are going to be doing one, most likely, rate drop and not a very large one at that.’
This is underpinning USD exchange rates during this morning’s European session, whilst USD investors await further economic data later this afternoon.
Pound (GBP) quiet amid lull in data
The pound (GBP) is trading sideways against the majority of its peers this morning as a lack of UK data sees Sterling struggle to find a clear trajectory.
Amid an absence of domestic data, UK investors are likely turning their attention towards the UK’s upcoming general election next month.
As the expected government in waiting, we could see the publication of the Labour party manifesto inspire some movement in the pound today. A broadly positive reception to Labour’s plans for fiscal policy may help to bolster Sterling.
GBP/USD exchange rate forecast: US data in the spotlight
Looking ahead, the primary driver of movement for the pound US dollar exchange rate later this afternoon will be a duo of data releases from the US.
The latest US producer price index (PPI) is expected to report producer prices slowed last month.
As producer price inflation usually feeds through to consumers in subsequent months, this may dampen CPI expectations and pile more pressure on the US dollar.
Also scheduled for release this afternoon are the latest US initial jobless claims for the week ending June 8. The data is expected to report a slight downturn in those seeking unemployment, which may reflect positively on the ‘greenback’.
Turning to the pound, the absence of any notable UK data may see Sterling sentiment driven by market risk dynamics. Will a broadly upbeat mood help to underpin GBP exchange rates?