Ella 
The Pound to US Dollar (GBP/USD) exchange rate is showing resilience today, bolstered by stronger-than-expected UK inflation figures. At the time of writing, the GBP/USD pair is trading around $1.2476, up approximately 0.4% from the day’s opening rate.
Pound (GBP) Gains Ground on Inflation Outperformance
The British Pound (GBP) is on the rise against its major counterparts following the release of the UK’s latest inflation data, which exceeded market expectations.
In March, headline inflation moderated to 3.2%, surpassing forecasts of 3.1%. Although this marks the second consecutive monthly decline, it still represents the lowest level since September 2021. The Office for National Statistics (ONS) attributed this higher-than-expected figure to upward pressure from escalating fuel prices, while food inflation dropped to its lowest level in two and a half years, contributing to an overall slowdown in inflationary pressures.
Core inflation also retreated to a 27-month low of 4.2%, outperforming forecasts of 4.1%.
The release of this data has caused ripples in global markets as investors reassess the likelihood of future interest rate cuts by the Bank of England (BoE) in light of stronger-than-anticipated inflation figures.
Yael Selfin, Chief Economist at KPMG UK, commented:
“Today’s data are unlikely to move the needle for the Bank of England. We expect inflation to return to target later this spring, which raises the prospect of interest rate cuts from June onwards.”
While the GBP may continue to attract investor interest in the wake of this significant data release, conflicting expectations regarding BoE rate cuts could temper Sterling’s gains throughout the trading session.
US Dollar (USD) Faces Pressure Amidst Geopolitical Tensions
Conversely, the US Dollar (USD) is encountering resistance today as geopolitical concerns drive market sentiment. Despite hovering near a five-month high, the ‘greenback’ is struggling amidst escalating tensions in the Middle East. Investors, wary of potential inflationary implications arising from heightened geopolitical risks, are favoring riskier assets over the safe-haven USD.
Federal Reserve Chair Jerome Powell’s recent remarks failed to lift the USD’s fortunes, as he expressed caution regarding the economy’s trajectory:
“The recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence.”
While Powell’s comments pushed back against immediate expectations of monetary easing following last week’s robust CPI data, market sentiment remains buoyant, limiting the USD’s upside potential.
GBP/USD Outlook Hinges on Market Response and Fed Commentary
Looking ahead, the GBP/USD exchange rate is poised to react to unfolding market dynamics, particularly in response to the UK CPI release. Continued deferral of interest rate cut expectations may support Sterling’s ascent. Meanwhile, attention will also be on speeches from Federal Reserve policymakers Loretta Mester and Michelle Bowman, with any hawkish guidance potentially boosting the USD as market participants adjust their interest rate expectations.
