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Will GBP/USD Strengthen on Diminished Fed Rate Hike Bets?

US Dollar Currency Forecast

Pound US Dollar (GBP/USD) Exchange Rate Narrows as USD Battles Sell-Off

The Pound US Dollar (GBP/USD) exchange rate is narrowing this morning, as the US Dollar continues to experience heavy selling pressure.

At the time of writing, GBP/USD is trading at around US$1.2509, showing little movement from the morning’s opening rates.

Will GBP Remain Muted amid Lack of Data?

With data releases thin on the ground for the rest of the session, the Pound (GBP) may continue to trade flatly.

However, Bank of England (BoE) policymaker Silvana Tenreyro is scheduled to speak this afternoon. As one of the BoE’s most dovish members, if she reiterates a need to pause the current cycle of tightening GBP could weaken.

Yet, as markets currently calculate an 80% chance of a 25bps hike in May, Tenreyro’s speech may do little to dissuade these bets.

As such, Sterling could remain trapped in narrow boundaries through the rest of the European session. Because of this, it could remain trading in line with other fluctuations in currency, or even dip as investors enact profit-taking.

Furthermore, if the US retail data prints as forecast, the market mood may sour amid signs of economic weakness in the superpower. This could dent Sterling, due to it’s increasingly risk-sensitive nature.

Will USD Weaken amid Retail Sales Slump?

The US Dollar (USD) may continue to come under heavy selling pressure as we move through today’s session. Currently, the ‘Greenback’ is continuing to suffer from profit taking.

Now languishing around multi-month lows against the Pound, recent releases have indicated that inflation is beginning to fall at a rapid pace. Because of this, investors have scaled back their bets on further rate hikes from the Federal Reserve.

Headline inflation dropped an entire percentage point to 5%, nearing a two-year low. Dovish meeting minutes from the Federal Open Market Committee’s (FOMC) latest discussions added to this, before yesterday’s surprise 0.5% cooldown in PPI cemented the perception.

This afternoon, the latest batch of retail sales data is due to print. This could exert further pressure on the ‘Greenback’ as a further 0.4% contraction is forecast by economists.

If the data prints in line with expectations, the signs of economic slowdown in the US may be further reinforced. This could add to the belief that the Fed needs to pause their tightening cycle if they wish to target a ‘soft landing’.

Later, the latest consumer sentiment report for April is due to print. This could further pile on the pressure to pause hikes if it prints as forecast. While a hold is expected, previous data declined unexpectedly. If this occurs again, it may weigh heavily on the US Dollar by reflecting increased pessimism amongst US consumers.

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