London— The Pound Sterling (GBP) continues to hover just below the psychological resistance level of 1.3000 against the US Dollar (USD) during Monday’s London session. The GBP/USD pair remains steady amidst growing anticipation that the Federal Reserve (Fed) will initiate interest rate cuts starting from its September meeting.
Investor confidence in the likelihood of Fed rate reductions in September remains robust, despite stronger-than-expected US Producer Price Index (PPI) data released on Friday. Both headline and core producer inflation exceeded expectations, driven by a notable increase in service costs.
Market sentiment favoring Fed rate cuts gained momentum following the US Consumer Price Index (CPI) report for June, which indicated a resumption of disinflation trends after a pause earlier in the year. Inflation pressures moderated across headline and core metrics, reinforcing expectations of Fed monetary easing amid signs of labor market weaknesses.
Meanwhile, the US Dollar Index (DXY), tracking the Greenback against major currencies, consolidates near 104.00 as investors seek safe-haven assets following an assassination attempt on former US President Donald Trump. This event has heightened speculation of Trump’s potential victory in the upcoming US Presidential elections.
Despite these developments, the near-term outlook for the US Dollar remains bearish as markets price in imminent Fed rate cuts. Attention now turns to the release of US monthly Retail Sales data for June on Tuesday, with economists forecasting stagnation after a modest 0.1% growth in May.
Market Focus on UK Data: Pound Strengthens Ahead of Key Releases
The Pound Sterling has strengthened against major counterparts on Monday, bolstered by perceptions of the UK as a more stable investment destination amidst uncertainties in the European Union and US economies. The clarity provided by Keir Starmer’s Labour Party victory has supported confidence in stable fiscal policies and governance.
Adding to Sterling’s resilience is the uncertainty surrounding the timing of potential rate cuts by the Bank of England (BoE). While financial markets anticipate rate reductions from the August meeting onwards, BoE policymakers remain cautious, citing concerns over elevated inflation in the service sector driven by robust wage growth. Wage increases are outpacing levels necessary for price stability, posing a dilemma for policy decisions.
This week, market attention will be keenly focused on key economic releases from the UK. The Office for National Statistics (ONS) is scheduled to publish inflation data on Wednesday and employment figures on Thursday. Analysts expect the core Consumer Price Index (CPI) to ease to 3.4% from May’s 3.5%, while Annual Average Earnings Including Bonus for the three months ending in May are projected to soften to 5.7% from the previous 5.9%.
The upcoming data releases are poised to provide clarity on the trajectory of UK monetary policy amidst global economic uncertainties.
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