The Pound Sterling (GBP) has recently exhibited sideways movement, consolidating near a monthly high around 1.2700 against the US Dollar (USD) during Thursday’s London session. The near-term outlook for the GBP/USD pair remains positive as ambiguity surrounding the timing of Bank of England (BoE) rate cuts intensifies, propelled by resilient wage growth figures in the United Kingdom (UK). This has fostered a favorable environment for the Pound Sterling.
UK Average Earnings demonstrated steady growth in the three months leading to March, raising concerns regarding the progress of inflation towards the desired 2% rate. Robust wage growth has contributed to service inflation, posing a significant hurdle to the disinflation process.
With a relatively quiet UK economic calendar ahead, investors will closely monitor commentary on interest rates from key BoE policymakers, including Megan Greene and Catherine Mann, scheduled to speak on Thursday and Friday, respectively.
In the broader market context, the Pound Sterling remains buoyant, hovering near the crucial resistance level of 1.2700 against the US Dollar. The GBP/USD pair maintains its strength amidst bullish market sentiment, fueled by heightened speculation surrounding potential interest rate cuts by the Federal Reserve (Fed) starting from the September meeting. Concurrently, S&P 500 futures exhibit gains in the European session, reflecting an improvement in investor risk-appetite.
According to the CME FedWatch tool, the probability of interest rate cuts in the September meeting has risen to 73%, up from 69% recorded a week ago. Investor confidence in Fed rate cuts has been bolstered by soft US inflation data, easing labor market conditions, and stagnant Retail Sales figures for April.
Recent data from the US Bureau of Labor Statistics (BLS) indicates that annual headline and core Consumer Price Index (CPI) growth have slowed to 3.4% and 3.6%, respectively, in line with expectations. Fed policymakers primarily focus on core inflation data for interest rate decisions. Despite inflation measures nearly doubling the 2% target, the anticipated decline in price pressures has instilled confidence among investors that inflationary pressures will eventually revert to the desired rate.
In terms of economic data releases, investors will closely monitor the Initial Jobless Claims data for the week ending May 10, expected to decline to 220K. Last week’s elevated jobless claims, the highest in eight months, weighed heavily on the US Dollar, underscoring the importance of upcoming data releases in shaping market sentiment towards the currency.
