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GBP/USD exchange rate to strengthen following Core PCE price index?

Stacks of US Dollar (USD) banknotes.

GBP/USD exchange rate muted amid lack of data

The pound US dollar (GBP/USD) exchange rate is trading sideways this morning amid a lack of both UK and US economic data.

At the time of writing the GBP/USD exchange rate is trading at around $1.2755, virtually unchanged from this morning’s opening rate.

Core PCE price index to underpin US dollar (USD)?

The US dollar (USD) is trapped in a narrow range against the majority of its peers this morning as a lull in US data see’s the greenback struggle to garner investor attention.

However, helping to keep USD exchange rates afloat thus far are some recent hawkish Federal Reserve comments.

As inflation in the US remains persistent, Fed officials have recently implied that this may prompt an additional interest rate hike, ultimately supporting the US dollar.

Looking ahead, the latest core PCE price index, which remains the Federal Reserve’s preferred measure of inflation, is scheduled for release on Friday.

As the data us forecast to remain unchanged in May, signs of sticky inflation may bolster USD exchange rates at the end of this week.

Beforehand, the latest domestic GDP estimate for the first quarter of 2024 is expected to confirm a slowdown in growth in the first quarter. Should the data match expectations, this could weaken USD in the interim.

Pound (GBP) to trade without a clear direction?

The pound (GBP) is rangebound this morning as a significant lack of UK data this week has seen GBP struggle to find a clear trajectory.

However, offering Sterling some modest support this morning is a pullback in Bank of England (BoE) interest rate cut bets.

After the BoE suspended all public appearances until after the UK’s upcoming general election, markets have priced in ‘zero chance’ of a June interest rate cut, ultimately lifting Sterling sentiment.

Michael Saunders, former member of the BoE’s Monetary Policy Committee and Senior Economist at Oxford Economics, explained:

‘They themselves [the MPC] wouldn’t want to be a cause of volatility. The MPC would be especially reluctant to do a surprise interest rate change during an election campaign.’

Looking ahead, UK economic data will remain scarce for the remainder of the week which will likely see the pound trade in line with risk dynamics.

As an increasingly risk-sensitive currency, upbeat trade should underpin GBP.  However, should markets opts for safer assets instead, Sterling is likely to trade on the back foot.

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