Pound Edges Up, but Dollar Poised to Stifle Rebound

The Pound sterling edged higher against the US Dollar during Monday's trading (Oct 12), with the GBP/USD pair hovering around 1.3243. However, gains remained limited as the Dollar continued to draw support from expectations of Federal Reserve policy tightening and rising geopolitical tensions. The Pound's movement also lacked support from strong domestic UK catalysts.

Sentiment toward the Dollar strengthened as markets repriced the likelihood of a Fed rate hike, driven by relatively robust US economic growth and inflation remaining above target. The US Dollar Index held above the 102 level, indicating that investors remain inclined to maintain positions in the US currency. This environment has kept the scope for a GBP/USD rally limited.

On the geopolitical front, Houthi attacks on Riyadh and uncertainty surrounding a proposed Russia-Ukraine "energy ceasefire" have yet to significantly impact the foreign exchange market. Nevertheless, heightened geopolitical risk continues to bolster demand for the Dollar as a safe-haven asset, particularly as markets grapple with uncertainty regarding energy supplies and global inflation.

Market attention has now shifted to the US CPI data for September, due for release on Wednesday. Markets anticipate core inflation of around 0.2% month-on-month, though there is a risk of a higher-than-expected reading. Should core CPI come in hot, expectations for Fed tightening could intensify, placing further pressure on the Pound. Conversely, a lower-than-expected figure could dampen the Dollar's appeal and pave the way for a GBP/USD rebound.

Analysts observe that the Pound's current gains remain fragile, as GBP/USD movements are driven more by Dollar strength than by UK fundamentals. As long as the DXY holds above 102 and expectations for Fed rate hikes remain elevated, the GBP/USD pair is likely to face continued pressure. US CPI serves as a key catalyst that could determine whether the Pound is able to extend its rebound or fall back under pressure from the Dollar.

Source: Newsmaker.id