The Pound-Dollar rate could come under pressure if US inflation accelerates, while weak UK GDP may leave Sterling vulnerable heading into the weekend.
The Pound US Dollar (GBP/USD) exchange rate ticked higher on Wednesday as demand for the ‘Greenback’ was tempered by wider currency trends.
At the time of writing, GBP/USD was trading at around $1.3559. Up roughly 0.2% from Wednesday’s opening levels.
DAILY RECAP:
The US Dollar (USD) faced headwinds on Wednesday as continued strength in the Japanese Yen weighed on demand for the ‘Greenback’.
The Yen climbed to a seven-month high against the US Dollar as expectations for a Bank of Japan (BoJ) rate hike strengthened, while the prospect of further Japanese policy tightening encouraged investors to unwind Yen-funded carry trades.
The Dollar was also being undermined by a cautious mood ahead of Friday’s US consumer price index as August’s inflation figures could prove pivotal for the Federal Reserve’s September policy decision, with markets currently pricing around a 60% probability of a 25-basis-point rate hike.
A softer-than-expected reading could see those expectations pared back, particularly after Fed Governor Christopher Waller recently indicated that he would favour leaving rates unchanged if there are signs that inflation is easing.
While able to tick up against the US Dollar, the Pound (GBP) was subdued against most of its other peers on Wednesday as surging energy prices revived domestic inflation anxieties.
Wholesale natural gas contracts in the UK spiked to their highest levels since 2022, driven by ongoing geopolitical instability across the Middle East.
Although mounting price pressures bolster the case for the Bank of England (BoE) to lift interest rates later in the year, markets appeared more unsettled by what this means for households.
GBP investors worry that a renewed squeeze on personal finances will paralyse consumer activity and derail the UK’s broader economic momentum over the months ahead.
Near-Term GBP/USD Forecast: Robust US Inflation Figures to Lift the ‘Greenback’?
Looking ahead to Thursday’s session, movement in the Pound to US Dollar (GBP/USD) exchange rate is likely to be driven by the latest US inflation figures.
Thursday’s producer price index is expected to report that factory-gate prices began to accelerate again in August.
This could set expectations for Friday’s more influential CPI data, strengthening the ‘Greenback’ if it signals inflationary pressures continue to build.
Meanwhile, the focus for GBP investors in the second half of the week will be the publication of the UK’s latest GDP figures on Friday.
Consensus estimates suggest that month-on-month economic activity ground to a halt in July, which could place fresh pressure on Sterling heading into the weekend.
Our currency coverage draws on live market data, official economic releases and published bank research.
