**Pound to Dollar Free to Pursue New Lows After U.S. Inflation Print Hits the Right Notes**
*By James Skinner. Article based on reporting for PoundSterlingLive.com.*
The British pound (GBP) is facing heightened vulnerability against the U.S. dollar (USD) after recent U.S. inflation figures delivered support for the greenback, putting further downside pressure on GBP/USD and potentially clearing the way for new multi-month lows.
This development follows the release of the latest U.S. Consumer Price Index (CPI) data, which showed a moderation of inflationary pressures stateside. The numbers delivered key evidence that price growth in the world’s largest economy is cooling, adding a boost to investor sentiment about the possibility of interest rate cuts from the U.S. Federal Reserve. Simultaneously, the move weighed further on the pound, which has already been under pressure amid stagnant UK economic data and a steady dovish tilt from the Bank of England.
### US Inflation Data Sets the Tone
The narrative for the U.S. dollar has shifted distinctly following the U.S. CPI release on June 12th, emphasizing the influence of inflationary trends on global currency markets. The official report from the Bureau of Labor Statistics showed that U.S. CPI for May, both headline and core, came in softer than expected.
**Key highlights from the report:**
– Headline annual inflation held steady at 3.3% in May, just below consensus forecasts for a 3.4% reading.
– The core CPI, which strips out volatile food and energy prices, cooled from 3.6% to 3.4%.
– Month-on-month headline inflation registered at 0.0%, down from April’s 0.3% and below market expectations.
– Core monthly inflation increased by 0.2%, below the 0.3% anticipated by economists.
This cooling inflation affirms hopes that the Federal Reserve is approaching the end of its interest rate hiking cycle, heightening expectations that rate reductions could be in sight later this year. Yet, the reaction of the dollar revealed the complexity of currency markets: while the softer data initially weakened the USD, it also brought relief rallies to U.S. equity and bond markets, creating a mixed but ultimately bullish undertone for the dollar against weaker counterparts.
### GBP/USD: Downside Risks Mount
The pound’s reaction has been markedly negative. With Sterling already trading on the back foot due to lackluster UK growth and political uncertainty heading into July’s general election, the latest U.S. inflation report can be seen as another nail in the coffin for near-term GBP/USD strength.
The GBP/USD pair promptly dropped below key technical support levels, including the psychologically significant 1.27 handle, signaling that the market now sees further downside potential. Whereas earlier in June the pound had shown some resilience, the latest macro developments have created conditions favorable for the dollar.
**Key factors pressuring GBP/USD:**
– The growing gap between UK inflation dynamics and those of the U.S., as the Bank of England hints at rate cuts while the Federal Reserve holds rates steady.
– Markets expect UK inflation to continue decelerating, influencing BoE policy to pivot to easing in the months ahead.
– The U.S. economy continues to outgrow the UK, with more dynamic labor and consumer sectors.
– Political risk surrounds the UK with a looming general election, raising uncertainty over policy continuity.
Analysts now believe that the GBP/USD rate, which has previously traded in a range from 1.2650 to 1.2850, is at risk of decisively breaking through the lower bounds of its 2024 trading range.
### The Path Ahead for Pound Sterling
Looking ahead, most major investment banks are pointing to ongoing downside risks for the pound against the dollar, especially as interest rate differentials widen in favor of the greenback. While some short-term relief rallies in GBP/USD cannot be excluded, the medium-term
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