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Will Cooler UK Inflation Soften BoE Bets and Weigh on Pound US Dollar (GBP/USD) Exchange Rate?

Pound Sterling and US Dollar notes

Pound US Dollar (GBP/USD) Exchange Rate Rangebound amid Return of Risk Appetite

The Pound US Dollar (GBP/USD) exchange rate is trending sideways today. A positive risk tone may be underpinning the currency pair as markets eye a resolution to the US debt crisis.

On the other hand, growing expectations of further interest rate hikes from the Federal Reserve may be keeping pressure on the pairing.

At time of writing the GBP/USD exchange rate is at around $1.2412, which is virtually unchanged from this morning’s opening figures.

Will Softer April Inflation Figures Pull Pound (GBP) Lower?

Looking to the coming week, the latest PMI readings for May could bolster Sterling on Tuesday if they rise as forecast. Private sector output figures for the UK have trended higher over recent months, particularly the UK’s dominant services sector.

Markets will be keenly awaiting Wednesday’s inflation data for signals regarding the BoE’s rate hike path. April’s inflation is set to decline to 8.2% from 10.1% in March.

If the figures print as forecast, it could prompt cooler BoE bets amid speculation that interest rate increases are feeding through to the UK’s economy.

Finally for the Pound, the latest retail sales figures on Friday could strengthen Sterling if they recover as expected. Following March’s 0.9% slump, sales volumes are expected to rise by 0.3% amid a bump in sales from the UK’s recent coronation celebrations.

Will Sticky Core PCE Index Reading Boost US Dollar (USD)?

Later today, a speech from Fed Chair Jerome Powell could see the US Dollar (USD) leap if he signals any further policy tightening from the central bank.

May’s PMI figures on Tuesday are expected to remain close to previous readings. USD could be lifted by signs of resilience in the US economy.

The forecast mild downturn could also strengthen bets on additional action from the Fed if the surveys indicate underling inflationary pressures. This could also support further gains for the US Dollar.

Like Powell’s speech today, the release of the latest FOMC minutes could see the currency climb if investors pick up on any hints of aggressive action from the Fed.

The latest reading of the core PCE price index, the Fed’s preferred measure of inflation, could also prompt fresh rate hike bets on Friday. The core index is expected to remain high at 0.3% alongside a rise in personal spending, personal income, and the standard PCE index.

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