Pound US Dollar Exchange Rate News: GBP/USD Wavered on Central Bank Uncertainties

June 12, 2023 - Written by John Cameron

STORY LINK Pound US Dollar Exchange Rate News: GBP/USD Wavered on Central Bank Uncertainties

Pound (GBP) Undermined by Underlying Economic Concerns

The Pound (GBP) found modest strength to open the week with amid elevated interest rate hike bets from the Bank of England (BoE). With a quiet trading calendar to kick the week off, economic growth and labour market data are due to print this week.
Propping Sterling up on Monday were comments from BoE external policymaker Jonathan Haskel writing in the Scotsman newspaper. Talking about the inflationary pressures currently gripping the UK economy, Haskel warns that embedded inflation would be far worse than elevated borrowing costs. He added:

‘We (BoE) are monitoring indicators of inflation momentum and persistence closely. My own view is that it’s important we continue to lean against the risks of inflation momentum, and therefore that further increases in interest rates cannot be ruled out. As difficult as our current circumstances are, embedded inflation would be worse.’

However, preventing any further gains are fears over the underlying growth risks in the UK economy. Despite upgraded growth forecasts from multiple economists and analysts, the UK will be left with ‘deep scars’ from the pandemic. With the BoE set to continue raising interest rates, businesses and households are set to suffer financially. Yael Selfin, Chief Economist at KPMG UK commented:

‘The UK economy has so far avoided a technical recession. But risks are still elevated. A stickier inflation will see monetary policy tightening even further, increasing the risk of unwelcome side effects, among other potential headwinds.’

US Dollar (USD) Quiet ahead of Busy Week

The US Dollar (USD) is relatively subdued this morning as investors start to shift to the sidelines ahead of a crucial week of data. Both the latest inflation reading and interest rate decisions could radically impact the ‘Greenback’ this week.

With recent economic data revealing a mixed picture of the US economy, with fears of a softening economy offset by a resiliently tight labour market. However, despite the latter proving a sticky point, it appears a pause could be the likeliest outcome.
With the market consensus leaning towards a pause, the safe-haven US Dollar could be struggling for demand ahead of the latest inflation reading on Tuesday. If the Federal Reserve opts to pause the rate hike cycle, the US Dollar could plunge.

GBP/USD Exchange Rate Forecast: Cooling US Inflation to Dent the Dollar?

Looking ahead, the Pound US Dollar exchange rate could see further movement with the latest inflation data for the US. Expectations of headline CPI easing to 4.1% from 4.9% could provide further evidence for the Fed to pause its aggressive tightening, souring USD investors’ moods.

Meanwhile, Sterling could move on the first of two major data releases for the UK this week. The latest labour market data could show strong employment growth, but unemployment is set to climb to 4.0%. Elsewhere, there could be little evidence to show that wage pressures are easing as average earnings are expected to climb to 7.0% from 6.7%.

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TAGS: Pound Dollar Forecasts