The Pound to Dollar exchange rate briefly rose above 1.28 but has since lost those gains, influenced by the Federal Reserve's decisions. The exchange rate climbed on Wednesday after U.S. inflation figures came in below expectations, reaching 1.2859, its highest since March 11. News of flat inflation in May led the market to anticipate two Federal Reserve rate cuts in 2024, starting in September, weakening the Dollar.
However, the Dollar rebounded when new Federal Reserve forecasts contradicted market expectations, indicating only one rate cut in 2024. The focus has been on projections from each member of the Federal Reserve Open Market Committee (FOMC) regarding future interest rates: in March, the median forecast was for three rate cuts this year; by June, it had decreased to just one. This 'hawkish' shift supports the Dollar, though given the softer inflation numbers, it's uncertain if the FOMC can adopt an even more 'hawkish' stance. For the USD to strengthen significantly, the Fed would need to shift from forecasting one cut in 2024 to none.
U.S. economic data has been mixed, with some strong and some disappointing readings creating a contradictory picture. However, Wednesday's inflation report is crucial as it suggests the disinflationary process is back on track after stalling earlier in the year. Core CPI prices rose 0.2% month-on-month in May, slightly below consensus and the April report, indicating mild price pressures for the second consecutive month. If the market grows increasingly confident of a September rate cut in the coming weeks, expect the Pound-Dollar exchange rate to break above the 1.28 ceiling.
