GBP/USD closed last week at around $1.2735.
The US Dollar (USD) edged higher on Monday following an influx of commentary from multiple Federal Reserve policymakers. Rate-setters struck a mostly hawkish consensus, indicating that they were not in a hurry to begin cutting interest rates.
On Tuesday, thin trading conditions saw the ‘greenback’ move without a clear trajectory against most of its rivals ahead of further Fed commentary. In addition to this, a decline in US Treasury bond yields undermined USD. However, further rate-setter commentary later in the session served to offset the US Dollar’s downside amid some moderately hawkish remarks.
A risk-averse market sentiment on Wednesday then lent USD some support, owing to the currency’s safe-haven status. Coupled with an uptick in US Treasury yields, the ‘greenback’ strengthened against its rivals. In the evening, the release of the Federal Reserve Open Committee’s latest meeting minutes lent USD some additional support amid signals that the Fed are not yet ready to cut interest rates.
On Thursday, the ‘greenback’ suffered a correction, thereby retreating from its recent winning streak the previous evenings. As the session progressed, USD edged higher as preliminary readings for both the manufacturing and service PMIs surprised notably to the upside. In addition to this, a larger-than-expected fall in initial jobless claims indicated a strengthening US labour market, further boosting US economic sentiment. However, a cautiously upbeat market mood offset USD’s upside potential, as investors favoured the US Dollar’s more risk-sensitive peers.
As the week drew to a close, an increasing appetite for risk undermined USD’s potential gains, despite an unexpected rise in durable goods orders in April, leaving the ‘greenback’ on the defensive as the week drew to a close.
Pound (GBP) Strengthens as CPI Beats Projections
The Pound (GBP) opened the week on a positive note, following some mixed commentary from Bank of England Deputy Governor, Ben Broadbent.
On Tuesday, GBP then traded in a wide range as the International Monetary Fund (IMF) increased its British growth forecasts for the year. However, surmounting BoE interest rate cut speculations undermined the upbeat outlook, leaving Sterling rudderless for much of the session.
Wednesday saw the latest batch of UK inflation data print warmer than forecast. Both headline and core inflation cooled less than anticipated in April, with the UK’s CPI easing from 3.2% to 2.3%, rather than a weightier slump to 2.1% last month. As markets dialled back their BoE rate cut speculations, Sterling leapt against its rivals, reaching fresh two-month highs.
The UK’s latest preliminary PMIs were then released on Thursday, offering some mixed results. While the UK’s manufacturing sector unexpectedly broke into growth territory, the British services sector softened more than forecast. Easing services inflation saw BoE rate cuts pulled into focus once more, leaving GBP to face headwinds.
On Friday, the UK’s latest retail data showed a significant contraction in retail sales last month, deterring investor interest in GBP. Sales fell by 2.3%, rather than slipping by 0.4% last month, and hitting a four-month low, reigniting British cost-of-living concerns.
Pound US Dollar Exchange Rate Forecast: US Inflation in Spotlight
Looking ahead, the Federal Reserve’s preferred gauge of inflation is due out next week. Investors will be eager for the release of the latest Core PCE price index, with any signs of disinflation likely to see the ‘greenback’ tumble.
