In Friday’s North American session, the Pound Sterling (GBP) strengthened against the US Dollar (USD), approaching the 1.3150 mark. The GBP/USD pair held firm as the US Dollar declined sharply following August’s Producer Price Index (PPI) data, which fueled expectations of aggressive interest rate cuts by the Federal Reserve (Fed) in the coming week.
The US Dollar Index (DXY), which measures the Greenback’s value against a basket of six major currencies, fell further to around 101.00.
The PPI report revealed that annual headline producer inflation increased by 1.7%, slower than the anticipated 1.8% and down from July’s 2.1%. Core PPI, excluding food and energy prices, grew by 2.4%, below the expected 2.5%. On a monthly basis, headline and core PPI rose by 0.2% and 0.3%, respectively.
According to the CME FedWatch Tool, the likelihood of the Fed implementing a 50 basis point rate cut to 4.75%-5.00% in September surged to 43%, up from 14% before the PPI data release.
Additionally, preliminary data from the University of Michigan Consumer Sentiment Index showed an improvement, rising to 69.0 in September, surpassing expectations of 68.0.
Daily Digest Market Movers:
The Pound Sterling outperformed major peers on Friday, buoyed by growing speculation of aggressive rate cuts by the Fed and firm expectations that the Bank of England (BoE) will maintain a cautious approach to policy easing.
Historically, aggressive Fed rate cuts enhance the appeal of risky assets. The S&P 500 futures posted modest gains in the Asian session following a strong performance on Thursday, reflecting improved investor risk appetite.
According to a Reuters poll, the BoE is expected to keep interest rates unchanged at 5.0% during its next policy meeting, following a cut from a 16-year high of 5.25% in August.
The next significant event for the Pound Sterling will be the release of the UK Consumer Price Index (CPI) data for August, scheduled for Wednesday. The latest BoE forecast projects that one-year forward UK annual headline inflation will remain at 2.7%.
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