On Tuesday, during the early session, the GBP/USD pair extended its rebound but remained below 1.2800. Meanwhile, the U.S. dollar index has been trading sideways around 102.07. Chief Economist at the Bank of England stated on Monday that the central bank's interest rate hikes have begun to effect inflation.There are risks on both sides of …
On Tuesday, during the early session, the GBP/USD pair extended its rebound but remained below 1.2800. Meanwhile, the U.S. dollar index has been trading sideways around 102.07. Chief Economist at the Bank of England stated on Monday that the central bank’s interest rate hikes have begun to effect inflation.There are risks on both sides of UK inflation, but is expected to return to goal in the first half of 2025 and fall to 5% by the end of this year.
It is also expected that food price inflation to fall to around 10% later this year, and considerably more for the whole Consumer Price Index (CPI) to revert to its 2% target. Interest rates are projected to remain high for an extended period of time. The central bank, on the other hand, will become increasingly data-dependent, and policymakers will adjust as the economy and data evolve.
In its August policy meeting last week, the Bank of England (BoE) hiked interest rates by 25 basis points (bps) to a 15-year high of 5.25% from 5%. However, the UK’s negative economic outlook and fear of recession weigh on the Pound Sterling and act as a headwind for the GBP/USD pair.
According to Reuters, Atlanta Federal Reserve (Fed) Governor suggested that more rate hikes are likely to be required to return inflation to target levels. Meanwhile, President of the New York Fed predicted that interest rates will continue to fall in the coming year.
Market players will be watching the inflation report later this week. The stronger-than-expected report could persuade the Fed to maintain its hawkish approach and raise interest rates further during the year. This, in turn, strengthens the U.S. dollar and drags on the GBP/USD pair.
Risk disclaimer:
Please note that this article does not offer any instructions or suggestions regarding investment decisions. It is important for you to conduct your own research or seek professional advice from a qualified professional before conducting an investment decision.
