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GBP/USD Exchange Rate to Remain Muted Despite UK GDP Report?

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Pound US Dollar (GBP/USD) Exchange Rate Sluggish amid UK’s GDP Release

The Pound US Dollar (GBP/USD) exchange rate is rangebound this morning, despite a stronger-than-expected UK GDP print.

At the time of writing the GBP/USD exchange rate is trading at around $1.2250, which is virtually unchanged from this morning’s opening rate.

Pound’s (GBP) Potential Capped by Recession Fears?

The Pound (GBP) is trading narrowly against most of its peers this morning after a brief uptick following the GDP report.

The report showed that GDP rose by 0.5% in October, surpassing forecasts for a 0.4% expansion. While this was the largest increase in nearly a year, it came from a particularly weak month of growth in September and therefore was unable to shake concerns over the UK’s recession.

Looking ahead, on Tuesday the Pound will likely be driven by employment data. The unemployment rate in October is expected to rise from 3.6% to 3.7%. An uptick in the jobless rate is also likely to feed into recession concerns.

Average earnings including bonuses are forecast to increase from 6% to 6.1%. If these print as true Sterling could see an uptick. However, as growth still lags behind inflation its gains could be limited.

US Dollar (USD) to Fall in Response to CPI Release?

The US Dollar (USD) is flat this morning, as USD investors brace for the latest US consumer price index.

The US will publish its CPI release tomorrow afternoon. Headline inflation rate is expected to fall from 7.7% to 7.3% in November. If this prints true then USD may face headwinds amid Federal Reserve speculation.

Falling inflation could incentivise the Fed to pursue a smaller interest rate hike. Markets have currently price in a 50bps hike as many believe that inflation has peaked.

Kathy Jones, chief fixed income strategist for the Schwab Center for Financial Research has said about inflation:

[It] has probably peaked but it may not come down as quickly as people want it to… The cumulative impact of higher rates are just beginning. Hence, the Fed has to step down its pace a bit’.

However, reassurance that the Fed will keep raising hikes for now could limit ‘Greenback’s’ losses today and tomorrow.

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