GBP/USD Steady at 1.2710 Amid Weaker US Dollar

GBP/USD Steady at 1.2710 Amid Weaker US Dollar

Key Points:

  • GBP/USD Valuation: Held steady at 1.2710 for two consecutive sessions.
  • Federal Reserve Stance: Cautious approach with a 49% chance of a rate cut in September.
  • BoE Inflation Outlook: Governor Bailey is optimistic about inflation nearing the 2% target.

During the latest trading session in Asian hours on Monday, the GBP/USD pair values at 1.2710. This marks the second consecutive session where the pair has held this position. The steady performance of the British pound against the US dollar reflects a complex interplay of economic factors influencing both currencies. A weaker US dollar has supported the GBP/USD exchange rate, contributing to the pair’s stability.

April Inflation at 0.3% Weakens US Dollar, Boosts GBP/USD

The US dollar has been experiencing a period of weakness, which has bolstered the GBP/USD pair. Several factors have contributed to the dollar’s decline, including market expectations regarding the Federal Reserve’s monetary policy. Furthermore, a significant factor is the recent data on US consumer inflation for April, which recorded a modest increase of 0.3%. This inflation data has led to increased speculation that the Federal Reserve might consider reducing interest rates in 2024, further weakening the dollar.

FedWatch Tool: 49.0% Chance of September Rate Cut

Despite the market’s anticipation of potential rate cuts, the Federal Reserve remains cautious. The CME FedWatch Tool indicates that the likelihood of a rate cut in September is 49.0%, a slight increase from the previous 48.6%. The anticipated cut would be by 25 basis points.

Federal Reserve members have expressed concerns about inflation, with Michelle Bowman noting that the progress on inflation might not be as steady as hoped. She pointed out that the decline in inflation last year was temporary and that no further progress has been made this year. Thomas Barkin added that while inflation is easing, reaching the 2% target will take longer.

GBP/USD: BoE Expected to Cut Rates by 60 Basis Points in 2024

In the UK, investors are preparing for potential rate cuts by the Bank of England (BoE) in 2024, with an expected reduction of 60 basis points, potentially starting in August. FactSet estimates forecast that the forthcoming data on the April UK Consumer Price Index (CPI), set to be published on Wednesday, will show an annual rise of 2.7%. This data is expected to provide insights into the inflationary pressures.

BoE Optimistic: Inflation Target of 2% by Next Month

BoE Governor Andrew Bailey is optimistic, predicting UK’s inflation will drop close to the 2% target next month. Following the release of March’s CPI data, inflation has declined in line with the BoE’s February forecast. The BoE’s inflation outlook will shape investor expectations and influence monetary policy decisions in the coming months.