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Will GBP/USD Strengthen as US Inflation Falls?

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Pound US Dollar (GBP/USD) Exchange Rate Stumbles amid Thin Trading Conditions

The Pound US Dollar (GBP/USD) exchange rate is slipping so far, with investors focusing on domestic headlines amid minimal data releases.

At the time of writing, GBP/USD is trading at around US$1.2131, displaying a fall of roughly 0.2 from the morning’s opening rates.

Pound (GBP) to be Capped amid Thin Trade?

The Pound (GBP) may remain muted during the rest of today and tomorrow, as a lack of impactful data may shift investor focus to UK headlines.

As such, the current wave of industrial action may continue to weigh on GBP through tomorrow’s session. Unions across the UK have been engaged in discussions over joint strike action in a reaction to the UK government’s new minimum service bill.

Because of this, further developments may weaken Sterling if more headlines appear tomorrow, as a coordinated strike could have a severe impact on the UK economy. Similarly, the UK’s housing market is showing signs of trouble. Further news on this sector could amplify recession anxieties and weaken the Pound.

On a wider stage, risk sentiment could sway Sterling during short term trade. With the Pound becoming increasingly risk sensitive, if the market mood continues to improve, Sterling could make gains against safer peers.

US Dollar (USD) to Fall Alongside Inflation?

The US Dollar (USD) could remain stagnant over the rest of today and tomorrow morning, due to a lack of data ahead of tomorrow’s inflation data.

Throughout today’s session, risk sentiment may be the core driver of movement for the ‘Greenback’. Currently, markets are in a modestly upbeat mood, preventing the safe-haven US Dollar from making much headway.

After a speech from Federal Reserve Chair Jerome Powell which offered little in the way of hints, investors have turned their focus towards the inflation data for December due tomorrow.

Headline and core inflation are both expected to fall. Headline inflation is expected to slip from 7.1% to 6.5%, while core inflation is forecast to drop from 6% to 5.7%. If this prints as expected, the US Dollar could weaken as rate hike expectations are pared back by investors.

However, with initial jobless data expected at the same time tomorrow, this data may cushion potential losses. The US labour market is forecast to stay within its current range, pointing to room for further tightening if necessary.

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