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Will Pound US Dollar (GBP/USD) Exchange Rate Fall Further if PCE Points to Persistent Inflation?

Stack of US Dollar banknotes

Pound US Dollar (GBP/USD) Exchange Rate Pulled Lower by Risk-Off Mood

The Pound US Dollar (GBP/USD) exchange rate is slipping today. A cautious mood may be weighing on the pairing today, as well as an uptick in US Treasury bond yields. Additionally, better-than-expected US GDP growth figures on Thursday may be prompting bets on hawkish action from the Federal Reserve. This may also be pulling GBP/USD lower.

Pound (GBP) to Find Support from BoE Rate Hike Bets?

The Pound (GBP) may continue to slip against its rivals over the course of today. Sterling will see no significant data releases today. This could leave the currency at the mercy of forecasts of a deep UK recession and poor 2023 GDP growth.

Bank of England (BoE) interest rate hike bets could keep Sterling from falling too far today. Markets have largely priced in a 50bps rate hike from the central bank. A recent poll by Reuters found the majority of economists surveyed agreeing on such a move from the BoE.

On the other hand, bets that the BoE could soon start to slow its pace of policy tightening could weigh on GBP today. Analysts have highlighted evidence of cooling inflation as cause of the slowdown.

Finally, the prospect of further industrial action in the UK could also keep pressure on GBP.

Will US Dollar (USD) be Boosted by Core PCE Uptick?

The US Dollar (USD) is currently edging higher today. If the risk appetite remains cautious then USD could firm today. A further rally in US Treasury bond yields could also lend further support to the US Dollar.

Bets on a more aggressive interest rate hike path from the Fed may also prompt gains for USD today. Thursday’s above-forecast GDP growth figures may be causing a turnaround in markets after bets earlier this week on a slowdown from the Fed. Jobless claims also beat forecasts to fall by more than forecast, pointing to a tight labour market.

Markets are awaiting the latest reading of the core PCE price index today, the Fed’s preferred measure of inflation. The index is forecast to slip in December which could prompt a pullback in rate hike bets.

The final reading of January’s consumer sentiment figures could also boost USD if today’s figures print as forecast. The data is expected to confirm a rise in consumer sentiment which may add to the positive sentiment surrounding the US economy.

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