Pound US Dollar (GBP/USD) Exchange Rate Subdued despite Uptick in US Inflation

November 14, 2024 - Written by John Cameron

STORY LINK Pound US Dollar (GBP/USD) Exchange Rate Subdued despite Uptick in US Inflation

The Pound US Dollar (GBP/USD) exchange rate traded sideways near a three-month low on Wednesday, with the American currency unable to push higher despite rising inflation.

The US Dollar (USD) experienced a slight downturn on Wednesday, pausing its recent upward trajectory.

In the past few days, USD has reached multi-month peaks, driven by anticipation that President-Elect Donald Trump's low-tax policies would prompt the Federal Reserve to maintain higher interest rates for an extended period.

However, on Wednesday, traders began to lean more heavily on the possibility of a December rate cut by the Fed, despite increasing inflation in the US.

The US consumer price index indicated that headline inflation rose from 2.4% to 2.6% in October, aligning with predictions. Nonetheless, the likelihood of a December cut climbed to 79%, up from 59% the previous day.

This shift in expectations weighed on USD, though the currency remained buoyed near its recent highs due to the ongoing 'Trump trade' sentiment.

The British Pound (GBP) moved without a clear direction in midweek trade as GBP investors were reluctant to adjust their positions in the Pound ahead of the potentially impactful UK GDP data on Friday.

Moreover, a lack of UK economic data and a mixed market mood contributed to the increasingly risk-sensitive currency’s uncertain movement.

Looking ahead, key speeches from Bank of England (BoE) Governor Andrew Bailey and Federal Reserve Chair Jerome Powell on Thursday evening could significantly impact the GBP/USD exchange rate.

If Bailey suggests that an interest rate cut is still a possibility at the BoE’s December meeting, it could drive the Pound lower. Similarly, any hints from Powell about another rate cut before the end of 2024 could weaken the US Dollar.

On Friday, the UK’s third-quarter GDP figures are set to be released, which could potentially end the week on a downbeat note for Sterling. Analysts anticipate that British economic growth slowed in the third quarter, from 0.5% to 0.2%. This could put additional pressure on the Pound.

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