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Pound US Dollar Exchange Rate Forecast: Inflation Data to Drive Volatility?

GBP/USD Exchange Rate Wavers ahead of Key Data

The Pound US Dollar (GBP/USD) exchange rate fluctuated today amid a shifting market mood. A data heavy week may drive volatility in the currency pairing.

At the time of writing the GBP/USD exchange rate is trading at around $1.2251, up approximately 0.2% from this morning’s opening rate.

Pound (GBP) Retreats Ahead of Inflation Data  

The Pound (GBP) firmed against its safer peers today following a spell of cautiously upbeat trade this morning.

Looking ahead, the UK’s latest jobs data is likely to impact the trajectory of the Pound. The unemployment rate for September is due on Tuesday, with economists forecasting a minor increase to 4.4%.

Also due out on Tuesday is the latest wage growth data, which is expected to report a slight fall in September’s average earnings. Should the data print as expected, signs of a slowing labour market may undermine Sterling.

On Wednesday, the UK’s inflation data is due out. Expected to fall from 6.7% to 4.8%, a drastic cooling in October’s year-on-year inflation rate could cause the Pound to falter.

A reading of 4.8% would see UK headline inflation hitting a nineteen-month low, indicating that the central bank’s recent rate hiking cycle is starting to be felt by the wider economy. This may fuel speculations that the Bank of England (BoE) is done raising interest rates, thereby denting the Pound.

Also due out on Wednesday is the UK’s latest retail sales data for October. A forecast uptick to 0.3% from September’s -0.9% may work to quell recent UK recession concerns in pointing to increased consumer activity. However, it is likely that significant inflation data may cast a shadow over positive retail data, leaving the Pound to falter throughout the week.

US Dollar (USD) Wobbles amid Data Lull

The US Dollar (USD) is recouping this morning’s losses, amid a shifting market mood.

The ‘Greenback’ is likely to see a choppy week of trade ahead, with the release of the latest US inflation data. Due on Tuesday, October’s annual inflation rate is forecast to have dipped from 3.7% to 3.3%. Slight cooling of inflation may undercut Federal Reserve rate hike bets, leaving USD to face headwinds. However, should inflation come in higher than expected, the US Dollar could rally amid speculations of further interest rate hikes.

The latest retail sales data for October is due on Wednesday, with a forecast contraction to -0.3%. Signs of decreased consumer activity may undermine Fed rate hike bets, pressuring the US Dollar as the week continues.

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