Home » GBP » Pound US Dollar Exchange Rate Forecast: GBP/USD Could Slip as Fed Continues Fighting Inflation

Pound US Dollar Exchange Rate Forecast: GBP/USD Could Slip as Fed Continues Fighting Inflation

Stack of US Dollar banknotes

Pound (GBP/USD) Exchange Rate Stumbles despite Hot Inflation Data

The Pound US Dollar (GBP/USD) exchange rate wavered lower this morning after UK inflation exceeded forecasts, jumping from 9.4% to a fresh 40-year high of 10.1%.

While the hot CPI cemented expectations that the Bank of England (BoE) will raise interest rates by a further 50 basis points, it also sparked anxiety about the period of great economic difficulty facing the UK.

Pound (GBP) May be Mixed as Markets Digest UK CPI

As markets digest the UK’s inflation rate reading, we could see more movement in the Pound (GBP).

Expectations that the BoE will continue aggressively tightening interest rates may underpin Sterling, limiting losses and maybe even providing an upside if some of the headwinds die down.

Those headwinds are the fears of an imminent UK recession and cost-of-living crisis, alongside concerns that the UK government is in a state of political paralysis.

Outgoing Prime Minister Boris Johnson has said it would be wrong for him to make any major policy announcements, arguing it is up to his successor to decide on any further fiscal support for those struggling with soaring inflation.

Meanwhile the two potential candidates for the premiership – Liz Truss and Rishi Sunak – continue to battle it out in an increasingly bitter leadership contest.

Many commentators fear that government inactivity now could exacerbate the current crisis. Opposition MPs, business leaders and economists are calling for an urgent plan to bring down inflation and insulate the most vulnerable from the coming economic storm.

If the general tone remains gloomy, then Sterling could struggle as the day progresses.

US Dollar (USD) to Rise on Hawkish Fed Expectations?

As for the US Dollar (USD), there are some potentially impactful events on today’s calendar.

First up we have the latest US retail sales figures. Economists expect American domestic sales growth to have slowed significantly in July to just 0.1%. However, recent US data has printed far better than forecast, so today’s release may also surprise to the upside.

If it does, it would imply ongoing strength in the US economy, which in turn gives the Federal Reserve more headroom to raise interest rates. As a result, USD may rise.

Later on, Fed policymaker Michelle Bowman is due to speak ahead of the release of the latest Federal Open Market Committee (FOMC) meeting minutes. USD investors will be looking to both events for fresh impetus and clarity on what the Fed’s continued tightening cycle might look like.

Any indication that recent strong data will indeed prompt the Fed to continue aggressively raising rates could boost the US Dollar.

Comments are closed.