Pound Falls as US Inflation Rises and UK Energy Price Cap Hike Looms

The Pound to US Dollar exchange rate fell on Wednesday as markets digested the latest US economic data. At the time of writing, GBP/USD was trading at around $1.3609, down around 0.3% from Wednesday's opening levels.

The US Dollar appreciated against the majority of its peers following the publication of the latest US core PCE price index, which revealed a 3.3% inflation rate in July. This increase in inflationary pressures boosted the odds of the Federal Reserve tightening monetary policy later in the year.

The Pound came under broad selling pressure as news of a 4% hike to the UK energy price cap brought household finances back into sharp focus, threatening to derail the UK's economic recovery and fuel another bout of inflation. The Bank of England may be forced to weigh further monetary tightening before the end of the year.

The upcoming Jackson Hole symposium will be a key event for currency traders, with New Fed Chair Kevin Warsh possibly offering insight into the Fed's policy outlook despite his efforts to limit guidance. This may see caution limit movement in the Pound to US Dollar exchange rate in advance of Warsh's speech on Friday.