Pound-Dollar Boosted by Risk Sentiment Ahead of U.S. Inflation Release

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The Pound to Dollar exchange rate reclaims the 1.27 level ahead of the U.S. inflation report, buoyed by positive market sentiment.

Pound-Dollar recovered through the midweek session and is now at 1.2763 at the time of writing, with investors eagerly looking forward to the U.S. inflation report, due at 13:30 GMT.

Analysts say the Pound's gains against the Dollar are courtesy of supportive global investment sentiment that has seen another push higher by global equity markets.

"Cable climbs to 1.2773 as global equity gains lift the risk-sensitive pound," says Robert Howard, a Reuters market analyst.

European shares opened higher on Thursday with the pan-European STOXX 600 up 0.6%, tracking overnight gains in tech-heavy Nasdaq.

Basic resources share outperformed, helped by a rise in prices of gold and copper as the dollar eased back.

Analysts at Goldman Sachs say they are constructive on the Sterling as long as equity markets remain buoyant: "Importantly... the pound is a unique currency that tends to do especially well in an environment of moderating rate volatility and buoyant equity prices."

Sentiment will likely be further boosted if U.S. inflation comes in below expectations.

3.2% year-on-year is the forecast for the headline CPI rate, with core inflation forecast at 3.8% y/y.

"Softer than expected U.S. CPI data might inflate cable to/through 1.2800-25," says Howard.

Markets will use the inflation report to assess the timing of interest rate cuts from the Federal Reserve, which will help set the tone for other central banks.

"We consider the risk of a below‑consensus outcome for the core CPI is greater than the risk of an above‑consensus outcome (see chart of the day below for details). Therefore, the USD could ease further today; a fall of 1% or more is possible," says Joseph Capurso, FX Strategist at Commonwealth Bank.