In the London session on Friday, the Pound Sterling (GBP) faced downward pressure as its sharp recovery from a four-day low near 1.2680 lost momentum. The GBP/USD pair traded cautiously amidst uncertainty surrounding the impending release of the United States core Personal Consumption Expenditure Price Index (PCE) data for April, scheduled for 12:30 GMT.
Market Expectations for Core PCE Inflation Data
Investors are closely eyeing the core PCE inflation data, which serves as the Federal Reserve’s (Fed) preferred inflation measure. Projections suggest a steady growth of 0.3% monthly and 2.8% annually. This report holds significant implications for the Fed’s rate-cut trajectory.
Impact of Inflation Data on Fed Policy
Should the core PCE data align with expectations, it is less likely to prompt the Fed towards rate cuts in September. Fed policymakers have expressed a preference for observing a sustained decline in inflation before considering normalization moves. A higher-than-expected inflation reading could delay potential rate cuts until November, while softer figures might accelerate rate reduction prospects from September.
Market Movers and Technical Analysis
The Pound Sterling edged down to 1.2720 against the US Dollar (USD), struggling to extend its recovery as the USD stabilized following a correction induced by downwardly revised US Q1 Gross Domestic Product (GDP) data. The revised GDP figures contributed to speculation about a Fed rate cut, which now stands slightly above 50%.
In the UK, economic outlook improved per Lloyds Bank’s survey, indicating increased business optimism amidst easing price pressures. However, the looming elections, with exit polls suggesting a potential shift in power to the Labour Party, add an element of volatility to the GBP.
Technical Analysis and Outlook
The GBP/USD pair exhibits a subdued performance ahead of the US core PCE Price Index data release. It remains above the 61.8% Fibonacci retracement support at 1.2670, indicating a bullish trajectory. Short-to-long-term Exponential Moving Averages (EMAs) continue to slope upwards, supporting the bullish trend.
However, the 14-period Relative Strength Index (RSI) suggests a fading upside momentum, with values between 40.00 and 60.00 indicating a temporary pause in bullish sentiment.
Conclusion
The Pound Sterling faces pressure as it awaits the release of US core PCE inflation data, with market sentiment influenced by Fed rate-cut prospects. Despite near-term volatility driven by UK elections, the GBP’s impact on monetary policy remains limited. Technical indicators suggest a bullish bias for the GBP/USD pair, albeit with a temporary moderation in momentum. Investors are advised to monitor inflation data for potential market shifts.
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