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Following the release of UK inflation data, the GBP/USD pair is benefiting from the US dollar’s decline as a result of testimony made by Fed Chair Jerome Powell regarding rate hikes.
Powell’s comments keep investors on edge, but the GBP/USD pair seems unaffected by the testimony. With a potential increase of 50 basis points, the BoE is anticipated to hike rates by 25 basis points to 4.75% in its upcoming decision.
Following the announcement of inflation data in the United Kingdom (UK), which initially supported the GBP/USD, the currency pair recovered some ground. However, it lost those gains as investors questioned the ability of the Bank of England (BoE) to control inflation without harming the economy. After falling to a daily low of 1.2689, the GBP/USD is currently trading at 1.2773, up from its opening price.
Wall Street remains under pressure as Jerome Powell’s two-day hearing before the US Congress gets underway due to a risk-off impulse. Powell said that despite slower growth, the US central bank would keep raising interest rates to keep inflation under control.
In addition, Jerome Powell said that choices would be made based on new information at each meeting and that “it may make sense to move rates higher, at a moderate pace.”
GBP/USD traders should be aware of last week’s Fed’s decision to keep rates unchanged at 5.00%-5.25%. However, officials upward revised peak rates above the 5.50% threshold, which seems to be seen as too high. Odds for a 25 bps Fed rate hike at the July meeting are 74.4%, but investors are not foreseeing rates past the 5.25%-5.50% range.
While remaining unchanged from April’s data, UK consumer inflation increased by 8.7% YoY in May, exceeding expectations of 8.4%. The Bank of England (BoE) is under pressure to act to control inflation as core inflation, which excludes volatile goods, increased by 7.1% YoY, exceeding estimates of 6.8%.
The BoE is anticipated to increase rates by 25 bps to 4.75% on Thursday. The odds on a half-point increase in the money markets are 50%, although the most recent wave of inflation data increased hopes the BoE could boost rates by 50 basis points.
The UK will feature the BoE’s decision. The US economic agenda will feature the Current Account, the Chicago Fed National Activity Index, and Initial Jobless Claims. Also, the Fed Chair Jerome Powell will continue its two-day testimony before the US Congress, while some officials would cross newswires.
