The Pound Sterling (GBP) remains subdued against the US Dollar (USD) in Friday’s London session, with the GBP/USD pair experiencing downward pressure as investors adopt a cautious stance ahead of the release of the US core Personal Consumption Expenditures (PCE) Price Index data for May.
The core PCE inflation, closely watched by the Federal Reserve (Fed), is anticipated to have slowed to 2.6% year-over-year (YoY) from April’s 2.8%. Monthly figures are expected to show a modest increase of 0.1%, compared to the previous 0.2% rise.
Market sentiment hinges on these inflation numbers, as softer-than-expected figures could heighten expectations of early Fed rate cuts. Conversely, stronger inflation data would diminish prospects of Fed easing and bolster the appeal of the US Dollar. Currently, the US Dollar Index (DXY), which gauges the Greenback against a basket of major currencies, nears the critical resistance level of 106.00.
According to the CME FedWatch tool, futures markets suggest a likelihood of two rate cuts by the Fed this year, with expectations pointing towards the easing cycle potentially commencing at the September meeting. However, Federal Reserve officials maintain a cautious stance, advocating for maintaining current interest rates until inflation trends towards their target of 2%.
Fed Governor Michelle Bowman reiterated this sentiment recently, emphasizing that the central bank is not yet ready to reduce interest rates unless inflationary pressures show significant signs of abating.
Meanwhile, the Pound Sterling has shown resilience against its peers following the UK Office for National Statistics’ revised Q1 Gross Domestic Product (GDP) report, which revealed stronger-than-expected growth of 0.7% quarter on quarter (QoQ) and 0.3% year on year (YoY). However, uncertainties surrounding the upcoming UK elections and expectations regarding a potential rate cut by the Bank of England (BoE) continue to influence Sterling’s performance.
Investors are closely monitoring the BoE’s next monetary policy meeting scheduled for August 1, where expectations are tilted towards a rate cut amidst returning headline inflation to the bank’s 2% target and ongoing concerns in the service sector. The stance of key policymakers, including Swati Dhingra and Deputy Governor Dave Ramsden, will be pivotal in shaping market expectations leading up to the meeting.
Related Topics:
