- The Pound Sterling retraces below the 1.3300 level against the US Dollar as the Greenback regains strength.
- Market consensus anticipates the Federal Reserve to maintain stable interest rates in its upcoming two policy meetings.
- Investors are keenly awaiting the release of the UK CPI data next week for further insights into the Bank of England’s monetary policy stance.
The Pound Sterling (GBP) experienced a reversal, falling below 1.3330 against the US Dollar (USD) during Friday’s North American trading session. The GBP/USD pair relinquished its intraday gains, moving into negative territory as the US Dollar (USD) recovered its earlier losses. This recovery followed the publication of the preliminary US Michigan Consumer Sentiment Index (CSI) and the Consumer Inflation Expectations data for May.
The US Dollar Index (DXY), a measure of the Greenback’s value relative to a basket of six major currencies, rebounded to approximately 100.90, indicating renewed dollar strength.
The Flash CSI reading unexpectedly declined to 50.8 from 52.2 in April, marking the lowest level since June 2022. This figure fell short of economists’ expectations, which had projected an increase to 53.4. This marks the fifth consecutive month of declining consumer sentiment. Concurrently, one-year forward Consumer Inflation Expectations rose to 7.3% from the previous reading of 6.5%. This increase in inflation expectations could potentially reinforce the Federal Reserve (Fed)’s inclination to maintain current interest rate levels. Market participants will be closely watching upcoming inflation data and Fed commentary to gauge the likelihood of future rate hikes.
Federal Reserve officials have previously expressed a preference for maintaining borrowing rates within the current range of 4.25%-4.50% until there is greater clarity regarding the potential economic impact of new policies enacted by the US administration under President Donald Trump. While the United States and China have agreed to a 90-day truce in their trade dispute and have implemented tariff reductions of 15%, some Fed policymakers remain concerned that the existing level of tariffs could still contribute to inflationary pressures. The central bank is carefully monitoring global trade dynamics and their potential impact on the US economy, alongside domestic economic indicators, to inform future monetary policy decisions.
