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Pound US Dollar Exchange Rate to Sink Further on Dovish BoE Speech?

US Dollar Currency Forecast

GBP/USD Exchange Rate Slips on Ramped Up Fed Rate Hike Bets

The Pound US Dollar (GBP/USD) exchange rate is dropping in the wake of higher-than-expected core inflation in the US. Elevated interest rate hike bets are bolstering the ‘Greenback’.

At time of writing the GBP/USD exchange rate is around $1.1966, a 0.43% fall from this morning’s opening levels.

US Dollar (USD) Climbs on Strengthening Rate Hike Bets

The US Dollar (USD) was relatively quiet this morning as investors waited for the core PCE price index, the preferred method of inflation gauge by the Fed. A bigger-than-expected climb in monthly core inflation reading has buoyed USD investors on bolstered rate hike bets.

With inflationary pressures remaining high, USD investors could now expect the Fed to continue their aggressive monetary policy. Excluding volatile prices such as food and energy, core PCE prices leapt by 0.6% in January, compared to a 0.2% increase previously, and above forecasts of a 0.4% increase. Analysts at Credit Suisse commented on how the latest reading could sway the Fed:

‘We anticipate an above-consensus acceleration in both headline and core PCE, from 0.1% MoM and 0.3% MoM in Dec to 0.6% MoM and 0.5% MoM respectively. If realized, these readings would be seen as reinforcing hawkish Fed policy risks, and on the margin might bring further weight to the scenario of a 50bps hike in March.’

Looking ahead, USD investors will continue to digest the latest raft of economic data. Then two speeches from Fed policymakers could serve to reinforce hopes of further rate hikes. Cleveland Fed President Loretta Mester and Fed board member Philip Jefferson are both scheduled to talk this afternoon. Any further hints of the central bank sticking to its aggressive tightening path could see the ‘Greenback’ rise further.

Pound (GBP) Undermined by Domestic Woes

Meanwhile, the Pound (GBP) is languishing amid a lack of economic data. Modest improvement in consumer confidence did little to shake the nerves of a faltering economic outlook. Domestic headlines, including the cost-of-living crisis and industrial action continue to weigh heavy.

Supermarkets across the country are experiencing fresh food shortages, combined with food inflation that shows no signs of abating. The toxic cocktail of Brexit, soaring interest rates, and bad weather overseas have seen intense pressure on millions of households. With low-income families bearing the brunt of escalating food prices, Which? Head of Food Policy Sue Davies, has called upon supermarkets to intervene and help with the dire situation:

‘It’s clear that food costs have soared in recent months, but our inflation tracker shows how households relying on supermarket value ranges are being hit the hardest.

‘Supermarkets need to act and Which? is calling for them to ensure everyone has easy access to basic, affordable food ranges at a store near them, particularly in areas where people are most in need.’

Looking ahead, the Pound could struggle heading into the weekend with only a speech from the most dovish member of the Bank of England (BoE) member. Monetary Policy Committee (MPC) member Silvana Tenreyro is set to speak later today. If Tenreyro hints at a pause in monetary policy from the central bank, Sterling could dip further.

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