In Thursday’s European session, the Pound Sterling (GBP) maintains a tight trading range near the round-level figure of 1.2700 against the US Dollar (USD). The GBP/USD pair faces broad pressure amidst uncertain market sentiment, particularly ahead of the release of the United States (US) core Personal Consumption Expenditures Price Index (PCE) data for April, scheduled for Friday.
Market attention remains focused on speculation surrounding potential Bank of England (BoE) interest rate cuts, with financial markets anticipating a commencement from the August meeting. Earlier projections suggested rate reductions starting as early as June; however, expectations for June cuts have dwindled following the release of the United Kingdom (UK) Consumer Price Index (CPI) report for April. The report indicated a deceleration in price pressures at a slower pace than previously estimated.
Despite a notable decline in UK headline CPI, concerns persist among BoE policymakers regarding a significant slowdown in service inflation momentum, which remains nearly double the pace necessary to bring core inflation down to the 2% target.
Pound Sterling Struggles for Direction
The Pound Sterling remains consolidated within a narrow range near 1.2700 as market participants shift their focus to the forthcoming US core PCE Price Index data for April, slated for publication on Friday. Analysts anticipate steady growth in both annual and monthly core PCE inflation readings, estimated at 2.8% and 0.3%, respectively.
Investor attention is particularly keen on the US Federal Reserve’s (Fed) preferred inflation gauge, as it significantly influences speculation about potential Fed rate cuts in the September meeting. Recent data releases, including an unexpected improvement in US Consumer Confidence for May and better-than-expected preliminary S&P Global PMI report for the same month, have led traders to pare back their Fed rate-cut bets for September.
Furthermore, the Fed’s hawkish stance on interest rates has further dampened expectations for rate cuts. Despite a slowdown in price pressures observed in April, Fed officials maintain a hawkish outlook, emphasizing the need for sustained inflation slowdown before considering policy normalization.
Pound Sterling Uncertainty Near 1.2700
The Pound Sterling finds temporary support slightly below 1.2700 in Thursday’s European session following a sharp sell-off on Wednesday. While the near-term outlook for the GBP/USD pair remains positive, with temporary support at the 61.8% Fibonacci retracement level (drawn from the March 8 high of 1.2900 to the April 22 low at 1.2300) at 1.2670, momentum has waned for now, as indicated by the 14-period Relative Strength Index (RSI) slipping into the 40.00-60.00 range. Nevertheless, all short-to-long-term Exponential Moving Averages (EMAs) are sloping higher, suggesting a prevailing uptrend.
