Pound US dollar (GBP/USD) exchange rate muted ahead of high impact US data
The pound US dollar (GBP/USD) exchange rate is trapped in a narrow range this morning as markets brace for the latest US inflation figures later in the day.
At the time of writing, GBP/USD is trading at around $1.2863, virtually unchanged from this morning’s opening levels.
US dollar (USD) mixed ahead of core PCE price index
The US dollar (USD) is fluctuating this morning, muted against the majority of its peers but faltering against some of its risker counterparts, as investors await the latest core PCE price index for June.
Following yesterday’s better-than-expected GDP data which resulted in a modest USD rally, investors will turn their attention to the Federal Reserve’s preferred measure of inflation.
Scheduled for release this afternoon, the core PCE price index is forecast to marginally drop from 2.6 to 2.5%.
This may cement bets the Fed will begin loosening its monetary policy in September as well as stoking expectations the bank could deliver at least two interest rate cuts by the end of the year.
Pound (GBP) wavers amid BoE divergence
The pound (GBP) is trading without a clear trajectory this morning as a lack of domestic data coupled with Bank of England (BoE) interest rate cut speculation has seen Sterling struggle to catch bids.
With less than a week to go before the BoE is set to deliver its next interest rate decision, markets are still 50/50 on whether the central bank will enact a rate cut, or decide keep rates unchanged at a 16-year high of 5.25%.
One viewpoint is that the central bank will not want to surprise markets with a rate cut in August, following a prolonged period of silence in the run up to the UK’s general election.
Andrew Goodwin, Chief UK Economist at Oxford Economics explains:
‘The conditions are in place for the MPC to cut, but we think they will wait until September to avoid surprising markets.’
However, many analysts are still pricing in a 25-point basis cut next week, despite a number of recent upbeat UK data.
Sanjay Raja, Senior Economist at Deutsche Bank explains:
‘We expect the MPC to deliver its first rate cut of the cycle, bringing the Bank Rate lower to 5%. It’s a close call.’
GBP/USD exchange rate forecast: US data to drive movement?
Looking ahead, the primary driver of movement for the pound US dollar exchange rate this afternoon will be the publication of the latest US core PCE price index.
Also scheduled for release this afternoon is the finalised Michigan consumer sentiment index for July.
Should the data mirror preliminary estimates and drop and confirm sentiment is at its the lowest levels since November, this could add additional pressure onto USD exchange rates this afternoon.
Turning to the pound, BoE speculation will likely continue to drive GBP movement until next week’s interest rate decision amid a lack of high impact data.
Will the recent slew of optimistic data be enough for the central bank to keep rates unchanged? Or will a 25-basis point rate cut next week undermine Sterling?