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Pound US dollar (GBP/USD) exchange rate forecast: PMIs in focus

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The Pound US Dollar (GBP/USD) exchange rate hit a fresh one-month high this morning following the UK’s latest inflation data, before retreating amid a souring market mood.

At the time of writing the GBP/USD exchange rate is trading at around $1.2527, virtually unchanged from this morning’s opening rate.

Pound (GBP) spikes as CPI beats forecasts

The pound (GBP) strengthened this morning as a warmer-than-forecast batch of UK inflation data saw investors dial down their Bank of England (BoE) interest rate cut speculations.

The hotter-than-expected CPI saw shifting rate cut bets initially lift Sterling against its rivals, before levelling off later in the session.

Looking ahead, the UK’s latest PMIs are due for release on Thursday and could drive notable volatility. Activity in the vital services sector is due to have softened in May to 54.7, retreating from April’s one year high of 55. Meanwhile, the manufacturing sector is due to have contracted at a slower pace this month, with the index set to print at 49.5, up from last month’s 49.1.

Should the data print as forecast, signs of ongoing UK economic strength could underpin the pound.

A speech from BoE Chief Economist Huw Pill could then influence Sterling’s movement, with any dovish rhetoric from the senior rate-setter likely to weigh on GBP.

On Friday, the UK’s latest retail data could then undermine GBP exchange rates. Retail sales are expected to have decline by 0.4% in April. A return to weak consumer activity last month could hamper the pound, indicating ongoing cost-of-living concerns across Britain, leaving GBP to fall flat as the week draws to a close.

US dollar (USD) subdued amid lack of data

The US dollar (USD) is edging higher this afternoon as risk-averse trade permeates global markets, underpinning the safe-haven currency.

Looking ahead, the latest American PMIs are due for release. Both the manufacturing and services indexes are due to hold steady in May at 50 and 51.3, respectively.

Signs of steady activity across both sectors could lift the ‘greenback’ against its rivals, indicating ongoing economic resilience.

Also due on Thursday are the latest initial jobless claims in the US. The number of American citizens claiming unemployment benefits are set to have slightly declined to 220,000 during the week ending 18 May, which could reinforce recent Federal Reserve comments about the strength of the US labour sector, thereby buoying USD.

In addition to this, a speech from Fed policymaker Raphael Bostic could further boost USD as the week nears an end. Should Bostic continue to advocate for restrictive monetary policy, the ‘greenback’ could climb against its peers.

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