BUZZ-COMMENT-Sterling eyes highs as UK inflation, rate outlook mirrors US

Credit: REUTERS/Pascal Lauener

Sterling remains trapped between its 200-DMA at 1.2570, and the daily cloud top at 1.2702, as UK and U.S. rate expectations continue to evolve. That said, the pound has risen to the high-end of its range after upbeat UK data and persistently above target inflation keep the BoE, and Fed, on a high-for-longer rate tack.

Recent USD strength had been predicated on a reversal of year-end 2023's extreme dovish rate expectations, which had priced near 7 rate cuts in 2024. With the U.S. inflation reduction having stalled above 3%, 3.9% for core inflation, the lofty Fed cut outlook has been dialed considerably back, with LSEG's IRPR showing a relatively scant 82bps of cuts in 2024, beginning in June.

While the high-for-longer Fed view would generally be USD positive, the dollar has been mired in a tight range against the pound as UK rate expectations are following the U.S.. While further BoE rate hikes are off the table, dovish BoE rate tones have been dialed back in the wake of steady UK inflation and upbeat UK economic data.

GBP/USD's recent bid is capped near the high end of its recent range and under current conditions not likely to break in either direction, unless U.S. or UK growth or inflation becomes unanchored.

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GBP Chart:

(Paul Spirgel is a Reuters market analyst. The views expressed are his own)


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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