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Pound US Dollar Exchange Rate Forecast: BoE to Raise Rates in June on Strong UK Inflation?

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GBP/USD Exchange Rate Steady Following UK Inflation

The Pound US Dollar (GBP/USD) exchange rate is holding its ground this morning as a stronger-than-expected UK inflation release helps to offset USD strength.

At the time of writing the GBP/USD exchange rate is trading at around $1.2395. Virtually unchanged from this morning’s opening rate.

Pound (GBP) Fluctuates as Strong UK Inflation Bolsters BoE Rate Expectations

The UK’s latest consumer price index may help to underpin the Pound (GBP) in the coming weeks amid a strengthening of Bank of England (BoE) interest rate expectations.

Today’s CPI figures reported UK inflation fell to single digits for the first time since August. However, the drop from 10.1% to 8.7% in April was still above forecasts for deceleration to 8.2%.

But, it is the surprise acceleration in the core CPI figures which appears to be primarily stoking BoE rate hike bets. Underlying inflation unexpectedly jumped from 6.2% to 6.8%.

This suggests inflation is far stickier than previously suspected and that the BoE may need to take more action to bring it under control.

Commenting on the Inflation release, Chancellor Jeremy Hunt, said:

‘There are things underneath those numbers which show that this battle is far from over. We’ve got a long way to go.’

The odds of another 25bps rate hike from the BoE in June rose sharply following the CPI release.

However, the Pound walked back some of its initial gains amid concerns more rate hikes could ultimately stymie the UK’s growth prospects.

US Dollar (USD) To Strengthen as US Debt Ceiling Talks Drag On

The US Dollar (USD) looks to remain in a position of strength so long as talks regarding the US debt ceiling remain deadlocked.

Markets are growing increasingly unnerved by the lack of progress being made in talks as the deadline to raise the US government’s borrowing limit draws ever closer.

While US House speaker Kevin McCarthy and president Joe Biden spoke of a ‘productive’ discussion on Monday, it remains unclear if a deal is on the cards, with the US Treasury having begun asking agencies to try and delay payments

A US default could have major ramifications for the US growth and the wider global economy. Leading investors to favour the safe-haven US Dollar as talks continue without any clear progress.

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