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Pound US Dollar Exchange Rate to Plunge on US Inflation Data?

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GBP/USD Exchange Rate Wavers on Improving Risk Sentiment

The Pound US Dollar (GBP/USD) exchange rate is fluctuating as risk appetite improves but economic jitters remain.

At time of writing the GBP/USD exchange rate is around $1.2733, relatively unchanged from this morning.

Pound (GBP) Undermined by Economic Growth Fears

The Pound (GBP) is struggling for demand again this morning amid a lack of economic data. Despite expectations mounting of the Bank of England (BoE) continuing their tightening cycle through to the end of the year, economic concerns offset gains.

With the central bank and economists expecting inflation to remain sky high for the foreseeable future, further tightening is expected. Despite the prospect of further interest rate hikes, Sterling is struggling as a downbeat economic outlook could worsen on soaring rates.

The National Institute of Economic and Social Research (NIESR) have warned that the UK could face five years of lost economic growth. With a myriad of troubles weighing on the UK, economic growth could stutter for the next few years. Professor Stephen Millard, Deputy Director for Macroeconomic Modelling and Forecasting at NIESR, commented on the latest findings:

‘The triple supply shocks of Brexit, Covid and the Russian invasion of Ukraine, together with the monetary tightening that has been necessary to bring inflation down, have badly affected the UK economy.’

Looking ahead to Friday, the Pound could come under further pressure if the latest economic growth figures print to forecast. An expected stagnation in quarterly growth could weigh on Sterling, further highlighting a stuttering economy.

US Dollar (USD) Capped by Pared Rate Hike Bets

Meanwhile, the US Dollar (USD) retreated from its lofty perch as an improving market mood sapped safe-haven flows.

A surprisingly dovish tilt from Philadelphia Federal Reserve President Patrick Harker pared interest rate hike bets from the Fed, souring the ‘Greenback’. In a speech in Philadelphia, Harker admitted that the central bank is close to nearing their current rate hike cycle. Harker added:

‘Absent any alarming new data between now and mid-September, I believe we may be at the point where we can be patient and hold rates steady and let the monetary policy actions we have taken do their work.’

With an end in sight, the global market could breathe a sigh of relief as pressures could finally start to ease up on the global economy. A rise in risk appetite is souring the safe-haven US Dollar.

Looking ahead to tomorrow, the latest inflation data for the US could boost the ‘Greenback’ if estimates prove true. Headline CPI inflation is expected to accelerate to 3.3%, the first increase in over a year. Renewed rate hike bets could significantly bolster the US Dollar.

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