The Pound to Dollar (GBP/USD) exchange rate jumped above 1.3600 on Wednesday, reaching its strongest level since May as falling Treasury yields hit the US Dollar.
Pound Sterling‘s own UK inflation backdrop was broadly neutral.
DAILY RECAP:
GBP/USD climbed around 0.5% as the Dollar sold off sharply across the major currencies.
The decisive move came after the US Treasury announced it would double buybacks of longer-dated government bonds, sending 10 and 30-year yields lower and easing financial conditions.
Deutsche Bank strategist George Saravelos warned that failure by the Federal Reserve to recognise that effect would amount to “an additional dollar negative driver.”
The subsequent FOMC minutes were more hawkish.
Several policymakers had been prepared to raise rates in July, while many judged that another increase would be needed if inflation failed to return towards target.
Markets largely looked through that message following softer jobs, inflation and retail sales data released since the meeting.
ING’s Chris Turner said: “Our base case is that it does not, and the dollar softens a little,” referring to the prospect of a September Fed hike.
Scotiabank remains similarly cautious on the US currency, stating: “We remain bearish on the outlook for the USD in the short/medium term.”
Pound Sterling had earlier shown little reaction to UK inflation.
Headline CPI rose as expected to 2.9%, while services inflation eased to 3.4% and producer input prices dropped 1.7%.
Those figures, combined with Tuesday’s softer labour data, leave the Bank of England with little urgency to raise rates again.
Near-Term GBP/USD Forecast: 1.3650 in Focus After Dollar Sell-Off
Thursday brings US jobless claims, forecast at 210,000, alongside the Philadelphia Fed manufacturing index.
Friday is busier for Sterling. UK retail sales are forecast to fall 0.5%, before manufacturing and services PMIs at 09:30 BST.
US flash PMIs follow at 14:45 BST.
Strong UK activity alongside softer US figures could push GBP/USD through 1.3650 and expose 1.3700.
Weak UK retail sales combined with resilient US data would put 1.3500 back in view.
The broader Pound to Dollar exchange rate (GBP/USD) remains constructive while the pair holds above the low-1.35 area.
Our currency coverage draws on live market data, official economic releases and published bank research.
