UK inflation Data Sparks Pound to Dollar Exchange Rate Gains

September 19, 2024 - Written by John Cameron

STORY LINK UK inflation Data Sparks Pound to Dollar Exchange Rate Gains

The Pound US Dollar (GBP/USD) exchange ticked up on Wednesday following the publication of the UK’s latest inflation data.

At the time of writing, GBP/USD was trading at approximately $1.3214 up roughly 0.4% from the start of Wednesday’s session.

The pound (GBP) strengthened against most of its rivals on Wednesday, bolstered by the UK's latest inflation report.

The Office for National Statistics (ONS) revealed that headline inflation held steady at 2.2% in August, contrary to market predictions of a slight decline to 2.1%.

Core inflation also surpassed expectations, rising from 3.3% to 3.6%, exceeding the forecasted 3.5% figure.

Moreover, the Bank of England’s (BoE) preferred inflation measure saw an increase, with services inflation climbing from 5.2% to 5.6%.

These solid inflation numbers effectively cemented an expected BoE interest rate hold tomorrow, reinforcing the pound's upward momentum.

Sam North, Market Analyst at trading platform eToro commented:

‘UK services inflation slightly exceeded expectations in August at 5.6% year-on-year, prompting a brief hawkish lift in GBP [the pound]. However, the release is unlikely to significantly impact the BoE’s upcoming policy decision, with an unchanged Bank Rate still expected.’

The US Dollar (USD) faced a lackluster trading session on Wednesday, as investors adopted a cautious approach ahead of the Federal Reserve's impending interest rate decision.

Market participants widely anticipate the Fed to announce its first rate cut since 2020, potentially putting downward pressure on USD.

However, the US Dollar could see its losses tempered if the central bank opts for a modest 25 basis-point cut, rather than the more aggressive 50 basis-point reduction currently forecasted.

Looking ahead, the primary catalyst for movement in the Pound US Dollar (GBP/USD) exchange rate is set to be the upcoming interest rate decisions from the Federal Reserve and the Bank of England (BoE).

Today, the Fed is expected to announce a 50 basis-point cut, a move that could send USD exchange rates tumbling.

Meanwhile, GBP exchange rates are poised to strengthen if the BoE maintains its hold on UK interest rates on Thursday, as widely anticipated by markets.

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TAGS: Pound Dollar Forecasts