Pound US dollar (GBP/USD) exchange rate muted following dovish Fed remarks
The pound US dollar (GBP/USD) exchange rate is trapped in a narrow range this morning following yesterday’s remarks from Federal Reserve Chair Jerome Powell.
At the time of writing, GBP/USD is trading at around $1.2969, virtually unchanged from this morning’s opening levels.
US dollar (USD) undermined by Fed rate cut bets
The US dollar (USD) is trading sideways against the majority of its peers this morning as dovish comments from the Chair of the Fed continue to dampen USD sentiment.
Speaking at the Economic Club in Washington DC on Monday, Powell hinted that interest rates could be cut before inflation reaches the Fed’s 2% target rate.
Powell explained:
‘The implication of that is that if you wait until inflation gets all the way down to 2%, you’ve probably waited too long, because the tightening that you’re doing, or the level of tightness that you have, is still having effects which will probably drive inflation below 2%.What increases that confidence in that is more good inflation data, and lately here we have been getting some of that.’
Powell’s comments were enough to cement September intrest rate cut bets, with the CME’s FedWatch Tool reflecting this, ultimately undermining the ‘greenback’ this morning.
Pound (GBP) holds steady amid falling grocery inflation
The pound (GBP) is holding steady against the majority of its peers this morning, supported by the UK’s latest grocery inflation data.
Market research firm Kantar revealed that UK inflation has fallen to its lowest level in three years in the four weeks leading to July 7.
Grocery inflation fell to 1.6%, with products such as toilet tissues, dog food and butter experiencing the largest fall. However, items such as beer, crisps and soft drinks soared thanks to the 2024 European Championships.
Fraser McKevitt, Head of Retail and Consumer Insight at Kantar, commented:
‘England’s hopes might have been dashed on Sunday, but there was still some cause for celebration in the grocery industry. Football fans drove beer sales up by an average of 13% on the days that the England men’s team played, compared with the same day during the previous week. Sales of crisps and snacks also got a boost, up by 5% compared with the month before. With many matches played on “school nights”, though, some Britons chose moderation. Spending on no and low-alcohol beer soared by 38% on matchdays.’
GBP/USD exchange rate forecast: US retail sales in focus
Looking ahead, the pound US dollar exchange rate is likely to experience volatility this afternoon as the US releases its latest retail sales data.
The index is expected to show 0% growth in June, following a lacklustre 0.1% reading in May, and could stymie USD exchange rates should the data match expectations.
Turning to the pound, the primary driver of movement this week will likely be the publication the UK’s latest consumer price index.
Scheduled for release on Wednesday, core inflation is forecast to cool from 3.5% to 3.4% in June, while headline inflation is expected to remain at the Bank of England’s (BoE) 2% target.
Should the upcoming inflation data print below forecast and cool more than expected, this will likely ramp up BoE rate cut bets for August and in turn hobble GBP.