The Pound-Dollar rate could extend gains if UK inflation strengthens BoE hike bets, although softer labour data may limit Sterling’s upside.
Trade in the Pound US Dollar (GBP/USD) exchange rate was highly volatile last week amid dramatic swings in pricing for a Federal Reserve interest rate hike this month.
At the time of writing, GBP/USD was trading at around $1.3226. Almost unchanged from the start of last week’s session.
Pound to Dollar (GBP/USD): 1.33301 (+0.44%)
Dollar to Yen (USD/JPY): 157.99261 (-0.09%)
DAILY RECAP:
Trade in the US Dollar (USD) proved to be highly volatile last week, striking a new year-to-date high before swiftly collapsing.
USD was initially subdued this week amid a modest improvement in risk appetite and investor caution ahead of the latest US consumer price index.
The US Dollar then stormed higher as the CPI figures outpaced expectations, reporting that inflation accelerated to 3.7% in September.
The figures raised concerns that inflationary pressures were becoming entrenched and saw USD investors rush to reprice Fed rate hike expectations, with the odds of an October hike climbing as high as 50% in the hours following the inflation data.
However, the ‘Greenback’ suffered a swift correction as it was hit by mounting concerns over the sustainability of AI spending, which has underpinned the bulk of US economic growth over the past couple of years.
The USD selloff then gathered pace following comments from Federal Reserve Chair Kevin Warsh, as his reluctance to commit to a specific policy path saw the odds of an October hike plummet back below 15%.
The Pound (GBP) struggled to find a strong directional bias through the first half of last week’s session.
While GBP investors welcomed an upgrade to the International Monetary Fund’s (IMF) latest growth forecast for the UK, Sterling’s upside potential remained limited following comments from Bank of England (BoE) Chief Economist Huw Pill.
Despite being one of the Monetary Policy Committee’s most hawkish members, Pill pushed back against market pricing that the BoE will deliver four hikes within a year.
Sterling then fared much better in the second half of the session as the UK’s latest GDP figures offered a welcome surprise after defying expectations for a contraction of growth in August.
Near-Term GBP/USD Forecast: Rising inflation to Lift Sterling?
Turning to this week, the Pound to US Dollar exchange rate could be pushed higher with the publication of the UK’s own consumer price index.
Consensus estimates predict inflation will have accelerated to 3.4% in September, likely strengthening Sterling sentiment as it reinforces bets the BoE will begin tightening monetary policy next month.
However, potentially tempering the upside in Sterling will be the UK’s latest labour figures, which are forecast to report a rise in unemployment in August.
Meanwhile, US economic data is in short supply this week, but the US Dollar may mount a recovery if fresh geopolitical uncertainty underpins safe-haven demand.
Our currency coverage draws on live market data, official economic releases and published bank research.
