The pound US dollar (GBP/USD) exchange rate is climbing higher this morning amid improved UK growth forecasts and ramped up Federal Reserve interest rate cut bets
At the time of writing the GBP/USD exchange rate is trading at around $1.2958, up approximately 0.3% from this morning’s opening rate.
Pound (GBP) rallies on improved UK growth expectations
The pound (GBP) continues to rally this morning in the wake of yesterday’s better-than-forecast GDP report.
Looking ahead, a data light-start to week could see Sterling trade without a clear direction throughout Monday’s and Tuesday’s European trading hours.
With the UK’s inflation data due out Wednesday, GBP investors may be reluctant to place any aggressive bets on the pound prior to the high-impact release.
The UK’s consumer price index (CPI) is forecast to remain unchanged in June, holding steady at the Bank of England’s (BoE) target rate of 2%. Should headline inflation print at 2% for a second consecutive month, this may solidify market expectations of an August interest rate cut from the BoE.
Additionally, core inflation is forecast to hold at 3.5% in June, pointing to its lowest level since October 2021.
On Thursday, the UK’s latest jobs data is then due for release, with economists expecting unemployment to remain at an almost three-year high of 4.4% in May. Signs of slack in the British labour market may apply additional pressure to the BoE to begin its monetary unwinding cycle.
Retail sales are due to sharply decline on Friday, contracting by 0.2% in June, following May’’s brief recovery which showed a 2.9% rise in consumer activity.
Should the data print as forecast, GBP may end the week on a sour note amid signs that cost pressures continue to stymie UK spending.
US dollar (USD) tanks on easing CPI
The US dollar (USD) continues to face headwinds this morning following Thursday’s cooler-than-forecast batch of US inflation data. Ramped up Federal Reserve interest rate cut expectations may continue to weigh on the ‘greenback’ ahead of the release of the latest US producer price index this afternoon. Signs of sticky producer prices could offer USD some much needed support as the week draws to a close.
Next week, a speech from Fed Chair Jerome Powell may once again hamper USD exchange rates, should the senior rate-setter maintain his recently dovish rhetoric.
Similarly, a speech from Fed policymaker Mary Daly could drive USD volatility if a dovish Fed consensus is brought to light.
US retail sales are then due for release on Tuesday, with a forecast stalling in consumer spending expected in June. Much like its GBP counterpart, signs of stagnant consumer spending could weigh on the ‘greenback’.
Later in the week, the latest initial jobless claims data could undermine USD further, should newly unemployed benefits claimants in the US hold close to ten-month highs.
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