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Pound US Dollar (GBP/USD) Exchange Rate to Slump on Strong US Inflation Print?

Pound US Dollar Currency Forecast

GBP/USD Exchange Rate Trades Level as Market Conditions Benefit Both Currencies

The Pound US Dollar (GBP/USD) exchange rate is trading sideways this morning as favourable market conditions lend tailwinds to both currencies. This trend is expected to alter, however, with the publication of US inflation data this afternoon.

At the time of writing, the Pound (GBP) trades at $1.3854, virtually unchanged from today’s opening levels.

US Dollar (USD) to Climb on Positive Inflation Data?

The US Dollar (USD) is expected to benefit from the publication of America’s inflation data this afternoon, which predicts a small drop in CPI from 5% last month to 4.9%, alongside a marginal climb in core inflation, from 3.8% to 4%.

Anticipation of the Federal Reserve’s tightening monetary policy has buoyed investor spirits, as the latest FOMC minutes reveal early tapering discussions. If today’s data shows consistently high inflation, the Fed may be spurred into action, as printing more dollars will merely lead to a weaker ‘Greenback’. Fed Chairman Jerome Powell is due to testify tomorrow.

Even if inflation figures print below expectations, disappointing investors, USD is unlikely to fall too far. The US Dollar continues to benefit from its safe-haven status as the covid Delta variant rages around Europe and the US alike, and a risk-off mood prevails.

Pound (GBP) Mutes as BoE Warns of Increased Risk-Taking

The Pound (GBP) is struggling for direction today, following a warning from the Bank of England (BoE) that an ‘increase in risk-taking behaviour creates the danger of a sharp correction in asset valuations…’: which, if it were to occur, could directly affect the financial system, tightening financial conditions and consequently exacerbating debt vulnerabilities within UK households and businesses.

Good news from the UK Prime Minister has also bolstered Pound sentiment recently, as Boris Johnson sticks by the instatement of ‘Freedom Day’ on 19 July. Despite warnings from several global health experts, Mr Johnson insists that the success of the UK vaccination drive mitigates any significant risk to the healthcare system.

Many remain critical, however, of the Government’s optimistic stance. Coronavirus cases and hospitalisations continue to increase, threatening the economy’s return to ‘normal’. In addition, disputes over the size of the UK’s Brexit bill are conflating international tensions, making a dip in Sterling’s prospects look more likely.