Pound to Dollar Mid-Week Forecast: GBP/USD Soars on UK & US Inflation

January 16, 2025 - Written by John Cameron

STORY LINK Pound to Dollar Mid-Week Forecast: GBP/USD Soars on UK & US Inflation

The Pound US Dollar exchange rate (GBP/USD) surged on Wednesday following the release of the latest inflation figures from both the UK and the US.

Cable was trading at approximately $1.2305, up roughly 0.7% from the start of Wednesday’s session.

On Wednesday, the Pound (GBP) maintained its strength against most of its major trading partners and recaptured much of the ground it had lost earlier in the week.

This recovery was fuelled by the release of the UK’s latest consumer price index (CPI) data, which revealed that inflation unexpectedly slowed at the end of last year.

The overall inflation rate fell from 2.6% to 2.5%, defying forecasts that it would rise to 2.7%. Similarly, core inflation dropped to 3.2% from 3.5%, instead of the expected decline to 3.4%.

The drop in UK inflation provided some relief to GBP investors and the currency, as it eased concerns about the recent rise in borrowing costs in the UK.

However, the data also sparked increased speculation about a potential interest rate cut by the Bank of England (BoE), which constrained Sterling’s ability to make further gains.

On Wednesday, the US Dollar (USD) fell sharply against most of its counterparts following the release of the latest US consumer price index.

While the headline inflation rate in the US increased as expected from 2.7% to 2.9% in December, core inflation, which excludes food and energy costs, unexpectedly declined from 3.3% to 3.2%.

This unexpected drop in core inflation was the main driver behind the USD's decline, keeping the ‘Greenback’ on the back foot throughout Wednesday’s European session.

Looking ahead to Thursday, the primary factor influencing the Pound US Dollar exchange rate will likely be the release of significant economic data from both the UK and the US.

The UK is set to publish its latest GDP figures for November which are expected to show an improvement from the previous reading of -0.1% to 0.2%.

If the data meets these forecasts, it could provide a boost to the Pound.

On the US side, the latest retail sales data for December will be released.

The reading is anticipated to dip from 0.7% to 0.6%, which could slightly weaken the US Dollar as the European session progresses into the afternoon.

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TAGS: Pound Dollar Forecasts