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Will Pound US Dollar (GBP/USD) Exchange Rate Make Further Gains if US Inflation Cools?

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Pound US Dollar (GBP/USD) Exchange Rate Trades Narrowly amid Risk-Off Mood

The Pound US Dollar (GBP/USD) exchange rate is trading in a narrow range today. A cautious mood may be weighing on the pairing. Mixed bets on future action from the Bank of England (BoE) may also be denting confidence in GBP/USD.

On the other hand, expectations of a slower pace of policy tightening from the Federal Reserve could be lending support to the pair.

At time of writing the GBP/USD exchange rate is at around $1.2457, virtually unchanged from this morning’s opening figures.

Will Drop in Core Inflation Send US Dollar (USD) Tumbling?

Looking to today for the US Dollar (USD), the latest jobless claims figures could help the currency to firm if they print close to previous levels as forecast.

On the other hand, high-impact employment data on Friday could undermine confidence in USD. Non farm payrolls are expected to have declined to 240,000 in March, indicating slack in the country’s labour market.

March’s unemployment figures could help to stem losses for the US Dollar, however. The rate is set to remain unchanged at 3.6%, a slight uptick from the 50-year low of 3.5%.

Next week, key inflation data is likely to be the primary driver of movement in the currency. Wednesday is set to bring a drop in March’s core inflation to 5%. This could also soften expectations of further tightening from the Fed. The latest FOMC minutes later that day may add to these bets.

Will Evidence of Contraction in UK Economy Pull Pound (GBP) Lower?

The Pound (GBP) may see little movement over the rest of this week. The UK is due to observe national holidays for Easter on Friday and Monday which means that markets will be closed.

Sterling could come under pressure next week if the British Retail Consortium’s (BRC) latest date print as expected. March’s retail sales are expected to slip, climbing by 4.2% versus February’s gain of 4.9.

On Thursday, a forecast contraction in the UK’s economy could deepen any losses for Sterling. March’s GDP is set to drop by 0.1% which could prompt fresh fears of a 2023 recession in the UK economy. Any further signals concerning the BoE’s forward path could also drive movement in GBP next week. A speech from the central bank’s chief economist Huw Pill on Thursday could bring additional policy tightening hints.

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