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Pound US dollar (GBP/USD) exchange rate forecast: US inflation to boost the ‘greenback’?

The Pound US Dollar (GBP/USD) exchange rate is rangebound this morning ahead of high-impact US inflation data, due out later today.

At the time of writing the GBP/USD exchange rate is trading at around $1.2515, virtually unchanged from this morning’s opening rate.

US dollar (USD) subdued ahead of PCE price index

The US dollar (USD) continues to face headwinds this morning in the wake of yesterday’s weaker-than-forecast GDP reports, as markets now brace for the latest inflation reports.

The PCE price index, which serves as the Federal Reserve’s preferred gauge of inflation, is due for release this afternoon. Economists expect to see a slight warming to 2.6% in March’s year-on-year figure, rising from the previous month’s 2.5%. Should the data print as forecast, USD may rally as interest rate cut speculations are deferred once again.

According to the CME FedWatch Tool, the likelihood that the Fed will maintain its current base rate of 5.25-5% during its June meeting stands at 90%. Any signs of persistently sticky inflation could see the chances of monetary loosening in the summer months dwindle further, as markets dial back their Fed rate cut expectations.

Pound (GBP) wavers amid data lull

The pound (GBP) is trading without a clear direction this morning amid a lack of fresh UK releases.

Meanwhile, the latest survey from the Office for National Statistics (ONS) reports that British citizens continue to cite the UK’s cost-of-living crisis remains one of the most important current issues impacting UK consumers. Of those surveyed, 87% of people stated that they continued to struggle amid high UK price pressures and a lack of cashflow. The downbeat news may see UK economic pessimism deter investor as the week closes.

Macroeconomic releases remain in short supply in the coming days, which could see the increasingly risk-sensitive pound driven primarily by market risk dynamics.

As tensions continue to unfold in the Middle East, concerns of global supply chain shocks may see an extension of today’s bullish trading conditions, with investors favouring Sterling over its safer peers.

Alternatively, any rapid moves towards safer assets will likely see GBP left rudderless against its safe-haven peers. With the latest US inflation data due for release this afternoon, the weighty release could also drive notable shifts in the currency market, driving the pound amid a lack of domestic releases.

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