Pound slides against the US dollar

Pound slides against the US dollar

Britain's coins dive into water in this illustrative image, October 26, 2017. Picture taken October 26, 2017. REUTERS/Dado Ruvic/Illustration

The pound was trading with modest losses against the US dollar on Monday. Photo: Dado Ruvic/Reuters

The pound (GBPUSD=X) lost ground against the dollar on Monday as the U.S. currency approached a five-week high as investors increased bets that the Federal Reserve would maintain tight monetary policy for longer.

The pound was trading around 1.2045 against the dollar, a 0.5% drop and a second straight day of losses for the currency.

The pound remains on the defensive after data released on Friday showed that while the UK narrowly avoided a technical recession in the last quarter of 2022, gross domestic product (GDP) still fell by 0.5 % for the month of December.

Monday is unlikely to generate big price swings in cable, with market participants treading cautiously ahead of Tuesday’s major economic releases, with the pound likely to fall further against the dollar.

Learn more: FTSE 100 up ahead of key inflation data

A good reading of the US CPI data would fuel expectations of a tightening of monetary policy from the Federal Reserve, likely sending the dollar higher.

“This week’s US CPI is one of the most important numbers in recent memory,” Barclays analysts said in a note.

“The dollar has rallied on the strength of the US labor market, but the evolving narrative should be updated once again on Tuesday.”

The pound is likely to fall if a stronger-than-expected rebound in US inflation conspires with resilient retail sales to push the US Federal Reserve away from aggressive interest rate hikes. But if the numbers are disappointing, the pound could jump, analysts say.

Learn more: Inflation ‘guaranteed’ to fall, insists Bank of England

“GBP/USD may rise this week if the USD eases as expected. GBP/USD may also find support if UK average weekly earnings growth or core CPI show no signs. downturn,” said Joseph Capurso, head of international economics at Commonwealth. Bank of Australia.

Watch: Why investors should listen to Jamie Dimon on inflation

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