Pound climbs against dollar ahead of US inflation report

The Sterling rose to 1.1682 against the dollar in Monday trading after analysts noted maintained hawkish sentiment from the US Federal Reserve ahead of US inflation data, which is scheduled for release on Tuesday.

Disappointing UK GDP growth of 0.2% in July did little to dent the Pound’s rise versus the dollar, with Prime Minister Liz Truss’ financial support package announced on Thursday lending some buoyancy to the Sterling after its spiral to 37-year lows earlier last week.

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“In their last chance to provide guidance before the 20-21 September meeting, there was no push-back from any Fed official on the market view that is almost fully priced for a 75bp hike. Fed rhetoric remains hawkish with officials resolute in their commitment to bring inflation down,” said ANZ senior economist Tom Kenny.

The US last saw inflation drop to 8.5% from its multi-decade record high of 9.1%, sparking some hope the US Fed would ease off aggressive interest rate hikes.

However, Fed chair Jerome Powell quickly shut down such hopes at the Jackson Hole convention in late August, during which he confirmed continued hawkish rate decisions until inflation was tackled back down to the 2% target.

Cleveland Fed president Loretta Mester said she didn’t expect inflation to return to 2% until 2024, and advocated potentially more aggressive rate hikes than the Fed already had in sight if inflation hits another peak.

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“My current view is that it will be necessary to move the nominal fed funds rate up to somewhat above 4 percent by early next year and hold it there; I do not anticipate the Fed cutting the fed funds rate target next year. But let me emphasize that this is based on my current reading of the economy and outlook,” said Mester to MNI News.

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