GBP/USD edges lower as traders price Fed bets

The GBP/USD pair is trading down on the day by some 0.7%, falling from the 1.1892 high to a low of 1.1759. The US dollar resumed its relentless move higher on Thursday, charting new 24-year highs in the Dollar Index that tracks the US dollar against six counterparts up more than 13% this year. It was last up 0.64% on the day at 108.710.

The Fed’s Beige Book also indicated that inflation remains brisk and labour markets tight, but there were signs that demand has slowed. This is concerning investors in anticipation of a recession which too is supporting the US dollar on safe-haven flows.

Markets are focusing on the Fed which is widely expected to raise the federal funds rate by 75 basis points at its July 26-27 meeting. The CPI data for June that was released Wednesday morning surprised to the upside, coming in far stronger than expected.

The pound will be subject to political uncertainties. The combination of slow growth, debt and high inflation is likely to provide very tricky for the new Tory leadership. Several candidates have proposed sweeping tax cuts that threaten both public finances and the inflation outlook.