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Pound US Dollar (GBP/USD) Exchange Rate to Drop Following US Inflation Release?

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GBP/USD Exchange Rate to Weaken as US Core Prices Rise?

The Pound US Dollar (GBP/USD) exchange rate is trending up at the time of writing as US Dollar (USD) losses are extended by risk-on trading sentiment and a general downwards correction. Following this afternoon’s inflation release, however, the ‘Greenback’ may rebound on expectations of a hawkish Federal Reserve.

At the time of writing, GBP/USD is trading at $1.1722, up 0.3% from today’s opening levels.

US Dollar (USD) to Climb Following Consumer Inflation Data?

The US Dollar is sinking this morning as the Dollar index trades in negative territory amid various headwinds. A continuing risk-on mood following yesterday’s upbeat trading sentiment effectively repels support for the safe-haven currency.

Moreover, markets have largely priced in another jumbo interest rate hike from the Fed next week at their 20 September policy meeting. Yet, today’s inflation data is likely to either reinforce the likelihood of a hawkish policy stance or detract from investors’ confidence in betting for further aggressive rate hikes.

Forecasts predict that headline inflation will have weakened in August, but that the core measure will have increased to 6.1% amid persistent price pressures. Analysts at Lloyds bank observe that recent Fed comments reflect ongoing concern inflationary pressures may remain elevated.

If the data meets predictions, the Fed seem likely to announce yet another sizeable interest rate rise next week. If the release misses forecasts on the other hand, the news will be negative for global currency markets, potentially attracting safe-haven support to the ‘Greenback’ either way.

Nadège Dufossé, head of cross-asset strategy at Candriam, comments: ‘Markets are betting on inflation decelerating. If we have a negative surprise on core inflation, of course it’ll have a negative impact on markets.’

Pound (GBP) to Weaken as Markets Digest Jobs Report?

The Pound enjoyed tailwinds early in this morning’s European session, as news that unemployment in the UK has fallen to a 48-year low buoyed Sterling sentiment.

Subsequently, GBP appears to have lost some of its earlier momentum, as markets assess the jobs report as a whole – experts have already given downbeat analyses of the UK’s lagging wage growth statistics, which show that real wages fell by 2.8% in the 3 months to July, excluding bonuses.

Furthermore, firms appear to be hiring less in order to minimise overheads amid severe inflationary pressures. Yet those who are hiring are struggling to attract workers as fewer people are looking for work.

James Smith, an ING economist, fears this may reflect an increasing number of people signing off work with long-term sickness.

Smith reports: ‘Alarmingly, the number of people classifying as not working due to long-term sickness is up by almost 400,000 since late 2019, and almost 150,000 in the last two months’ worth of data alone.’

Looking ahead, continuing analyses of the situation could inspire additional Sterling headwinds; elsewhere, investors may focus on reports of a ‘fiscal statement’ due to be revealed by the new Chancellor of the Exchequer next week.

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