During the early Asian session on Wednesday, the GBP/USD pair maintained its consolidation around 1.2590. Despite holding above the critical 100-day Exponential Moving Average (EMA), the pair encountered resistance below the 1.2600 mark. Market focus turns towards the release of the US Consumer Price Index (CPI) and Retail Sales report for April, alongside speeches from Fed officials Kashkari and Bowman.
Recent data from the Bureau of Labor Statistics revealed a notable increase in US wholesale inflation, with the Producer Price Index (PPI) reaching its highest rate in a year. April’s PPI figure surged 2.2% year-on-year, in line with expectations, while the Core PPI, excluding food and energy costs, rose 2.4% year-on-year. The monthly PPI and Core PPI both recorded a 0.5% increase in April.
The US Federal Reserve acknowledged the significance of the April PPI in supporting the case for maintaining higher rates but clarified it doesn’t automatically imply an imminent rate hike. Cleveland Fed President Loretta Mester expressed her preference for commencing asset purchase tapering this year, citing a favorable economic outlook.
Market participants eagerly await Wednesday’s US CPI data for potential market direction. A higher-than-anticipated inflation reading could quash expectations for a Fed rate cut, bolstering the US Dollar against the British Pound (GBP).
Conversely, the UK employment reports indicated signs of cooling, fueling speculation that the Bank of England (BoE) might opt for interest rate cuts in the coming months. Notably, the ILO Unemployment Rate rose to 4.3% in the three months to March, while overall wage growth excluding bonuses stagnated at 6.0% during the same period. The UK Employment Change registered a decline of 177K, exacerbating concerns.
Market sentiment leans towards the possibility of a BoE rate cut ahead of the Fed, potentially exerting downward pressure on the Cable and capping the upside potential of the GBP/USD pair in the short term.
