The GBP/USD pair paused its three-day losing streak, trading around 1.3140 during Asian hours on Monday. The US Dollar (USD) struggled as improved market optimism fueled rising dovish expectations regarding the US Federal Reserve’s (Fed) future actions.
Despite this optimism, July’s US Personal Consumption Expenditures (PCE) Index data tempered expectations of a significant rate cut by the Fed in September. The PCE Price Index rose by 2.5% year-over-year in July, matching the previous month’s figure but falling short of the anticipated 2.6%. Similarly, the core PCE, which excludes food and energy prices, increased by 2.6% year-over-year, consistent with June’s figure but slightly below the forecasted 2.7%.
According to the CME FedWatch Tool, markets currently estimate a 70% likelihood of at least a 25 basis point (bps) rate cut at the Fed’s September meeting. Attention is now shifting to upcoming US employment data, particularly August’s Nonfarm Payrolls (NFP), which will provide further clues on the size and pace of potential Fed rate cuts.
On the British Pound (GBP) side, the Bank of England (BoE) is expected to gradually reduce interest rates for the remainder of the year, which could help the Pound maintain its current levels. At the recent Jackson Hole Symposium, BoE Governor Andrew Bailey suggested that the second-round effects of inflationary pressures may be less severe than initially thought. However, he also cautioned against rushing into additional rate cuts, as reported by Reuters.
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