Pound US dollar (GBP/USD) surges as US CPI cools more than expected
Article updated 15:45, 11/7/2024
The pound US dollar (GBP/USD) exchange rate jumped to a fresh yearly high this afternoon following a cooler-than-forecast batch of US inflation data.
America’s latest consumer price index fell more than forecast, easing from May’s reading of 3.3% to 3% in June, rather than reporting a more modest dip to 3.1%, as economists had forecast. In addition to this, core inflation unexpectedly eased to 3.3%, rather than holding steady at 3.4% last month, in alignment with market projections.
Coming hot off the heels of Federal Reserve Chair Jerome Powell’s assertions that cooling inflation would enable looser Fed monetary policy, today’s easing CPI signified a step closer to Fed interest rate cuts during the third quarter. This saw surging Fed rate cut bets sink the US dollar (USD) during afternoon trade.
Chris Larkin, Managing Director of Trading and Investing at E-Trade from Morgan Stanley, said:
‘A lot can happen between now and September 18, but unless most of the numbers pivot back into ‘hot’ territory, the Fed’s reasoning for not cutting rates may no longer be justified.’
Meanwhile, an improving market sentiment further dented the safe-haven ‘greenback’, whilst underpinning the increasingly risk-sensitive pound (GBP).
Looking ahead, could an elevated American producer price index provide USD with some much-needed support as the week draws to a close?
At the time of writing, GBP/USD is trading at around $1.2922 up approximately 0.5% from today’s opening levels.
Original article continues below:
Pound US dollar (GBP/USD) exchange rate firms amid UK growth
The pound US dollar exchange rate is climbing higher this morning as the latest UK GDP report beat forecasts.
At the time of writing the GBP/USD exchange rate is trading at around $1.2866, up approximately 0.2% from this morning’s opening rate.
Pound (GBP) as UK GDP surprises to the upside
The pound (GBP) is attracting investor support this morning following a better-than-forecast GDP report.
On a monthly basis, the UK economy expanded at a faster-than-forecast pace of 0.4% in May, surpassing market projections of a more modest 0.2% expansion. Rebounding from April’s period of stalled growth, the upbeat news serves to lift Sterling sentiment this morning. Growth was largely spurred by improving services activity and higher construction output, sectors which have both struggled to pick up momentum in the year’s following the UK’s pandemic.
Sanjay Raja, Chief UK Economist of Deutsche Bank, commented:
‘The short-lived recession is now very much behind us. It’s now likely that Q2 growth could come close to the mark set in Q1 (our current nowcast models point to a 0.6% quarter-on-quarter reading with risks skewed to the upside). Equally, upside risks to our 2024 growth projection of 0.8% are also now crystallising.’
Improved growth forecasts may further boost Sterling as the session progresses, as well as providing a stroke of economic optimism for Keir Starmer’s new Labour government. Improving economic momentum and a strong recovery from last year’s shallow recession could see GBP hold the high ground today.
US dollar (USD) falters ahead of inflation data
The US dollar (USD) is facing headwinds this morning as markets brace for the latest American inflation data.
With the consumer price index set to ease on a yearly basis in June, dipping to 3.1%, further signs that US inflation has returned to a steady period of gradual easing may see increased Federal Reserve interest rate cut speculations weigh on the ‘greenback’.
Elsewhere, Fed Chair Jerome Powell’s latest commentary further pressures USD, following the senior rate-setters dovish tilt earlier this week.
Powell stated:
‘After a lack of progress toward our 2 percent inflation objective in the early part of this year, the most recent monthly readings have shown modest further progress. More good data would strengthen our confidence that inflation is moving sustainably toward 2 percent.’
With the looming US inflation data set to have eased June, could ramped up Fed rate cut bets dent USD?
Pound US dollar exchange rate forecast: US inflation in spotlight
Looking ahead, the latest batch of US inflation data will likely act as the core catalyst of USD movement this afternoon. While core inflation is due to remain unchanged at 3.4% in June, easing headline inflation may see markets pricing in more Fed rate cut bets than previously anticipated.
Looking to the UK, a lack of further releases today may see the pound driven primarily driven by global risk dynamics. A bullish market sentiment could underpin the increasingly risk-sensitive pound later today.