Pound-Dollar could push higher if softer US inflation and slower growth weaken Fed rate expectations, although renewed trade tensions may support the Dollar.
The Pound US Dollar (GBP/USD) exchange rate was mostly rangebound on Tuesday as markets expressed concern about how new US economic sanctions on Iran could impact Washington’s relationship with Beijing.
At the time of writing, GBP/USD was trading at around $1.3635. Virtually unchanged from Tuesday’s opening levels.
DAILY RECAP:
The US Dollar (USD) attracted support on Tuesday as concerns over the wider economic implications of the new US sanctions on Iran underpinned safe-haven demand.
The latest round of restrictions detailed by US Treasury Secretary Scott Bessent targets international entities that continue doing business with Iran.
Because China serves as Tehran’s primary crude oil customer, these measures threaten to reignite trade friction between the world’s two largest economies, especially after Beijing’s Foreign Ministry fired back, pledging to take all steps required to safeguard Chinese interests.
However, the resulting uptick in the ‘Greenback’ proved very modest as USD sentiment remained suppressed by the outlook for US inflation and US government intervention in the bond market.
The Pound (GBP) was trapped in a narrow range on Tuesday as a lull in UK economic data left Sterling to trade without clear directional bias.
GBP may have been able to attract some support from a moderation of UK government borrowing costs, had Sterling sentiment not been simultaneously neutralised by a dialling back of Bank of England (BoE) interest rate expectations.
Near-Term GBP/USD Forecast: Core PCE Price Index to be Closely Watched by USD Investors
Looking ahead, the primary catalyst of movement for the Pound to US Dollar (GBP/USD) exchange rate in the middle of the week is likely to be the publication of the latest US core PCE price index.
The Federal Reserve’s preferred indicator for inflation could apply some pressure to the US Dollar if a further moderation of price pressures in July sparks another dovish repricing of Fed rate hike bets.
Also potentially acting as a headwind for the ‘Greenback’ will be the publication of the latest US GDP estimate, which is expected to confirm a slowdown in growth in the second quarter.
Meanwhile in the UK, Wednesday’s Confederation of British Industry (CBI) distributive trades survey could offer Sterling a modest tailwind, provided it confirms that retail conditions showed further signs of improvement in August.
Our currency coverage draws on live market data, official economic releases and published bank research.
