The Pound Sterling (GBP) has found temporary support in the European session on Friday following a negative close on Thursday. However, the GBP/USD pair faces potential challenges due to higher monthly US core Personal Consumption Expenditure Price Index (PCE) data for January, limiting expectations of rate cuts by the Federal Reserve (Fed) in the upcoming June policy meeting.
January’s US monthly core inflation data rose by 0.4%, compared to a 0.1% increase in December, contributing to concerns about inflationary pressures. While the pace of growth was expected to be higher, it does not align with the goal of achieving a 2% inflation target. The data has cast doubt on the possibility of rate cuts by the Fed in the near term.
Simultaneously, the Pound Sterling faces a slightly uncertain market mood. In the broader term, the currency may benefit from the anticipation that the Bank of England (BoE) will consider reducing interest rates following the Fed’s lead.
Investors are speculating that both the BoE and the Fed will initiate interest rate cuts in August and June, respectively. This convergence in policy decisions is expected to ease divergence between the central banks, potentially attracting higher foreign inflows to the Pound Sterling.
Today’s focus will be on the UK’s S&P Global/CIPS Manufacturing PMI and the US ISM Manufacturing PMI for February. The UK Manufacturing PMI is anticipated to remain unchanged at 47.1, while the US Manufacturing PMI is expected to rise to 49.5 from 49.1 in January.
Despite interim support near 1.2600 for the Pound Sterling, a cautious market mood and the uncertainty surrounding central bank actions suggest a potential downside. The US Dollar Index remains firm above 104.00, reflecting ongoing strength in the greenback.
The US core PCE Price Index data for January, released on Thursday, met expectations, indicating a slightly uncertain market sentiment. While annual core inflation is gradually declining, it remains insufficient to prompt Federal Reserve policymakers to consider a normalization of the policy stance.
The Bank of England’s potential rate-cut move is expected in the third quarter of this year, according to a Reuters poll. However, BoE policymakers emphasize that rate cuts will only be discussed once they gain confidence that inflation will reach the desired 2% target. The Pound Sterling’s technical analysis shows it holding above 1.2600, supported by buying interest, but facing challenges with a sideways trend and a Descending Triangle formation. The 14-period RSI indicates low volatility.
