The pound remained rangebound against the dollar on Wednesday as it meandered its way through the 1.23 range.
The UK currency has been shackled by reduced bets on overly hawkish action from Bank of England (BoE) rate-setters and growing uncertainty around the British economic outlook.
Money markets are currently pricing in around 105 basis points (bps) of BoE rate rises by the end of the year, down from 120 bps late last week and around 145 bps at the end of last month.
US inflation rate slows but remains elevated
The dollar weakened slightly on Wednesday ahead of US inflation data that was expected to provide insight into the Federal Reserve’s policy tightening path.
The US currency has strengthened by more than 8% against a basket of currencies this year as the Fed becomes increasingly aggressive with its policy.
Last week the central bank lifted its benchmark interest rate by 50 bps – its biggest hike in 22 years – with money markets pricing in a further hike of at least 50 bps at its June meeting.
On Tuesday, Joe Biden underscored the importance of tackling inflation: “I want every American to know that I’m taking inflation very seriously,” he said. “It’s my top domestic priority.”
“Families all across America are hurting because of inflation,” the president said. “I understand what it feels like. I come from a family where if the price of gas or food went up, we felt it.”
US inflation cooled slightly last month but the annual rate remained near a 40-year high, leaving many Americans out of pocket.
The latest consumer price index (CPI) release – a measure of a broad range of goods and services – showed prices increased by a monthly rate of 0.3% in April, down from 1.2% in March, which represented the first decline since August.
Has inflation topped out? It’s still too early to tell. The 8.3% annual rate of inflation recorded in April was down from 8.5% the previous month but remains at a level unseen since the 1980s.
Looking ahead
A slew of data sets are slated for release from the UK and US economies tomorrow. Investors will keep a close eye on the latest UK GDP figures for signs of further economic weakness. The consensus suggests the reading for March is likely to reveal the economy contracted in the second quarter.
Wholesale inflation is in focus for the dollar on Thursday, with the producer price index forecast to fall.
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