- GBP/USD gained strength as the US dollar faced challenges after Moody’s downgraded the US credit rating from AAA to AA1.
- The greenback is under pressure due to inflation metrics, like the consumer and producer price indexes, indicating a potential easing of price increases.
- Traders are looking ahead to Wednesday’s UK CPI report for insights on the Bank of England’s upcoming policy decisions.
During Tuesday’s Asian trading hours, GBP/USD hovered around 1.3360, continuing its upward trend for the second day in a row. The Pound Sterling has gained against the US dollar, which has weakened in light of Moody’s recent downgrade of the US credit rating.
This downgrade follows similar actions by Fitch in 2023 and Standard & Poor’s in 2011. Moody’s anticipates that US federal debt could rise to approximately 134% of GDP by 2035, a significant increase from 98% in 2023, with the federal budget deficit projected to reach nearly 9% of GDP. The downgrade raises concerns over surging debt service costs, rising eligibility spending, and decreasing tax revenues.
Recent US economic data has further pressured the dollar, with inflation indicators suggesting a potential easing in price pressures. Trends in the Consumer Price Index (CPI) and Producer Price Index (PPI) have led to heightened expectations for more Federal Reserve rate cuts in 2025. Additionally, weaker-than-expected retail sales have sparked worries about a prolonged economic slowdown.
Looking forward, investors are keenly awaiting the UK’s April CPI report due Wednesday, which will offer insights into the Bank of England’s policy direction. The core CPI, which excludes volatile items like food and energy, is expected to increase by 3.6% year-on-year, slightly up from the previous 3.4% reading.
