The British Pound edged higher against the US Dollar on Friday, gaining 0.10% despite US consumer inflation data meeting expectations. While the CPI report initially boosted Federal Reserve rate hike expectations for next week in money markets, traders quickly dismissed the knee-jerk reaction, allowing Sterling to recover ground.
The GBP/USD pair’s resilience comes as market participants shift focus toward UK economic growth data, which appears to be overshadowing American inflation concerns. The modest pound appreciation suggests traders are weighing domestic UK fundamentals more heavily than transatlantic monetary policy divergence at present.
Money markets had briefly repriced Fed policy odds following the inflation print, but the lack of sustained dollar strength indicates weakening conviction in aggressive Fed tightening. This creates a window for Sterling strength as UK growth metrics take center stage in cross-currency valuations.
FXnCO Insight
Traders should monitor upcoming UK growth figures closely, as they’re currently driving GBP direction more than US inflation data, presenting short-term positioning opportunities in cable ahead of next week’s Fed decision.
Source: FXStreet