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Pound US Dollar Exchange Rate News: GBP/USD Wavers ahead of US Inflation

June 10, 2022 - Written by John Cameron

US Dollar (USD) Firms ahead of CPI Data

The US Dollar (USD) remains resilient today as investors eagerly await the release of May’s consumer price index as a cautious mood prevails.

Analysts expect this afternoon’s CPI figures to report headline US inflation remained at 8.3% last month, with the core CPI to fall to 5.9% from 6.2%. The drop in core inflation could trigger USD investors to rethink Federal Reserve rate hike expectations, especially if the slowdown is enough to stoke expectations that the Fed might pause its current tightening cycle after the summer.

In the meantime, the US Dollar is being buoyed today by the release of Citi Global Wealth Investments Mid-Year Outlook Report for 2022, which highlights the inflationary pressures gripping the global economy and how the Fed’s monetary policy could dictate the global economy going forward.

‘The worst of US consumer price inflation has already passed, with a decline to around 3.5% likely in 2023. Across developed economies, consumer prices have been rising faster than they have in decades. In response, policymakers are withdrawing the fiscal and monetary boost they provided when COVID struck.

‘The US Federal Reserve is leading the way, signalling some of the biggest annual interest rate rises in its history. We think that the Fed’s actions will determine if there is going to be a recession or sustained growth. The economy can stand higher rates, but not an abrupt withdrawal of liquidity.’

Fears of a global recession remain a key concern for markets and is helping to prop up demand for the safe-haven US Dollar this morning.

Pound (GBP) Trades Narrowly as Market Mood Remains Downbeat

The Pound (GBP) is muted today amid the lingering economic and political uncertainty. With the growing cost-of-living crisis worsening, political tailwinds are forever present for the Pound.

While Prime Minister Boris Johnson narrowly survived the no-confidence vote, concerns remain about his future. The expected political stability did not quite materialise, as Graham Brady, chair of the 1922 Committee has not ruled out a change to the law that prohibits another no-confidence vote for a year:

‘I’ve reflected quite a lot on this because of the amount of speculation (there) has been in the media. It is technically possible that laws can be changed in the future. And it’s possible that rules can be changed in the future.’

With Johnson failing to rally support from many in his own party, let alone the rest of the country, resignation fears loom heavy. The continuous political instability to the position of Prime Minster can only weigh heavy on the Pound, potentially deterring Sterling investors.

Former Conservative leader William Hague has warned that Johnson could see his tenure ending in other ways:

‘One way or another, when you’ve got that level of disaffection in your own party, it won’t end well.

I don’t know how it will end, but it will end in some sort of car crash in the cabinet, or some revolt of the activists, or a change in the rules to have another leadership ballot, or an election defeat. It will end badly.’

GBP/USD Exchange Rate Forecast: US Data to Compound Sterling Misery?

Looking ahead, all eyes will be on the US inflation rates out later today. The latest CPI could see some increased movement in the US Dollar as an expected slowdown of inflationary pressures could throw water on the Fed’s expected rate hikes.

With no data for the Pound today, market movement will be dictated by sentiment alone, with the ongoing economic and political uncertainty, sterling could come under further pressure to close out the week.
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