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Pound US dollar (GBP/USD) exchange rate forecast: Eyes on the Fed


The Pound US Dollar (GBP/USD) exchange rate is fluctuating this morning ahead of some market-moving US releases, due later today.

At the time of writing the GBP/USD exchange rate is trading at around $1.2754, virtually unchanged from this morning’s opening rate.

Pound (GBP) wavers as UK economy stalls

The pound (GBP) is largely subdued this morning despite confirmation that the UK economy flatlined in April, hitting its weakest growth so far this year. Economists were largely pessimistic about the downbeat release, with many suggesting that the road to economic recovery in the UK may be a bumpy one.

However, due to the volatile nature of monthly growth readings, other analysts appeared unperturbed by Britain’s lacklustre growth heading into the second quarter.

Additionally, as markets continue to defer their Bank of England (BoE) interest rate cut bets ahead of the UK’s upcoming general election, GBP’s losses remain largely cushioned.

Looking ahead, a lack of macroeconomic releases throughout the latter half of the week may leave GBP vulnerable to global market dynamics and shifting BoE monetary policy expectations.

Any bullish trade will likely underpin the increasingly risk-sensitive pound against its major rivals, while any risk-aversion may see GBP falter against its safe-haven rivals.

US dollar (USD) subdued ahead of inflation data

The US dollar (USD) is largely muted this morning ahead of some high-impact releases, due out this afternoon, with USD investors seemingly reluctant to place any aggressive bets in the interim.

The latest US inflation data is set for release later today, with headline inflation due to hold at 3.4% in May for a second consecutive month. Meanwhile, core inflation is forecast to have marginally eased to 3.5% in the same period.

Should the data print as forecast, signs of stubborn American inflation may see the ‘greenback’ garner some investor interest ahead of the Federal Reserve’s looming monetary policy meeting, which will take place this evening.

While the Federal Reserve is widely expected to deliver another hold on interest rates later today, markets will be eager to assess the central bank’s accompanying press conference, as well as the Federal Open Market Committee’s (FOMC) economic projections for the coming months.

Any hawkish rhetoric will likely see USD rally, as markets continue to dial back their Fed rate cut expectations.  

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