GBP/USD extended its upward trajectory for the third consecutive day, hovering around 1.2460 during Thursday’s Asian trading session. Investors are awaiting the release of the UK’s preliminary Gross Domestic Product (GDP) data later today, with economists forecasting a contraction in Q4 GDP. However, the UK economy is expected to show year-on-year growth.
The British economic outlook remains clouded, as Bank of England (BoE) Monetary Policy Committee (MPC) member Catherine Mann raised concerns about weakening demand in the UK. Mann has called for more accommodative financial conditions, highlighting the sharp slowdown in demand compared to earlier periods. She also advocated for a larger rate cut in the BoE’s recent policy meeting, where the central bank decided on a 25-basis point reduction.
Despite recent gains, GBP/USD’s upward movement may be capped by persistent inflation pressures in the United States. Inflation data released this week suggests the Federal Reserve could keep interest rates elevated at 4.25%-4.50% for an extended period. According to the CME FedWatch Tool, the likelihood of a Fed rate cut in June has dropped to nearly 30% following the latest consumer price index (CPI) report.
On Wednesday, the US Bureau of Labor Statistics reported that January’s CPI rose 3.0% year-over-year, surpassing expectations of 2.9%. The core CPI, which excludes volatile food and energy prices, climbed to 3.3%, exceeding the forecast of 3.1%. Month-over-month, headline inflation increased by 0.5%, up from 0.4% in December, while core CPI also saw a jump to 0.4% from 0.2%.
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