GBP/USD is trading on a stronger note around 1.2720 in the early Asian session on Thursday. The FOMC Minutes showed that participants are worried about the lack of progress on inflation towards its 2% target. Meanwhile, the UK CPI rose by 2.3% YoY in April, compared to 3.2% in March, beating the consensus of 2.1%. This data has had an impact on the GBP/USD pair, which has extended its rally near 1.2720.
The uptick in the GBP/USD pair was primarily driven by the hotter-than-expected UK CPI inflation data, which has reduced the likelihood of a rate cut by the Bank of England (BoE) in June. Later in the day, the release of the flash Purchasing Managers Index (PMI) reports from the UK and US will be closely watched by investors. The FOMC minutes from the recent policy meeting highlighted concerns about inflation being more stubborn than anticipated, leading to uncertainty about the Fed’s future interest rate cuts.
Fed Chair Jerome Powell has emphasized the need for patience and letting restrictive policies take their course as inflation remains high. The market is currently pricing in a 60% probability of a first-rate cut by the Fed in September, according to the CME FedWatch Tool. On the other hand, the UK CPI data for April showed inflation cooling down less than expected, resulting in a decrease in bets on a BoE rate cut next month. The CPI rose by 2.3% YoY, marking the lowest level since July 2021.
The hotter UK CPI inflation has boosted the Pound Sterling (GBP) and provided support for the GBP/USD pair. Investors have revised their expectations for a BoE rate cut in June to just 18%, down from 50% earlier in the week. As a result, the GBP/USD pair has continued to trade on a stronger note around 1.2720. The upcoming PMI reports from the UK and US will be crucial in determining the pair’s next move, as investors monitor the impact of inflation and central bank policies on the currency pair.
Overall, the GBP/USD pair’s recent rally has been driven by stronger-than-expected UK CPI data, which has reduced the likelihood of a BoE rate cut in June. The FOMC minutes have highlighted concerns about inflation being more persistent than anticipated, leading to uncertainty about future interest rate cuts by the Fed. The Pound Sterling (GBP) has received a boost from the hotter UK CPI inflation, creating a tailwind for the GBP/USD pair. Investors will closely monitor upcoming economic data releases and central bank statements for further insights into the currency pair’s future movements.
