Pound-Dollar could remain under pressure if inflation fears keep risk appetite weak, although easing Middle East tensions may help Sterling recover.
The Pound US Dollar (GBP/USD) exchange rate drifted lower on Tuesday as renewed global inflation concerns softened market risk sentiment.
At the time of writing, GBP/USD was trading at around $1.3526. Slightly lower than Tuesday’s opening levels.
DAILY RECAP:
The US Dollar (USD) firmed on Tuesday as a fresh surge in energy prices revived concerns over global inflation and underpinned demand for the safe-haven ‘greenback’.
Brent crude approached the $100-per-barrel mark on Tuesday morning, following targeted strikes against Saudi energy facilities.
Markets fear a fresh energy price shock will quickly feed through into higher consumer and producer prices, with the rise in inflation pushing central banks around the global into tightening monetary policy to counter the inflationary pressures.
However, the US Dollar’s upside potential ultimately remained limited amid some caution ahead of this week’s US inflation data, which will be key in setting expectations for whether the Federal Reserve will hike interest rates next week.
The fresh spike in crude oil also dampened appetite for the Pound (GBP) on Tuesday as it pushed UK gilt yields higher.
As global inflation concerns intensified, government borrowing costs rose, with yields on the UK benchmark 10-year gilt rising around 0.3%, propelling yields just shy of the multi-year highs struck during last week’s bond market turmoil.
Higher yields will complicate matters for Chancellor John Healey. Straining the government’s debt-servicing capacity, the move narrows the Treasury’s fiscal wriggle room just weeks before the October Budget.
Near-Term GBP/USD Forecast: Limited Data to Drive the Pairing?
Looking ahead, the absence of any notable UK or US macroeconomic data could leave movement in the Pound to US Dollar (GBP/USD) exchange rate to be driven by wider market trends through the middle of the week.
If the market remains gripped by inflation concerns, it’s likely to further erode investor risk appetite and underpin demand for safe-haven assets like the US Dollar.
On the other hand, any easing of tensions in the Middle East could swiftly trigger a reversal in the recent energy price spike, both tempering USD demand and boosting Sterling sentiment if it brings UK bond yields back down.
Our currency coverage draws on live market data, official economic releases and published bank research.
