Market Analysis
The British Pound (GBP) is trading cautiously against the US Dollar (USD) during Friday's London session. The GBP/USD pair has shown slight declines this week, with investors adopting a cautious stance ahead of the release of the US core Personal Consumption Expenditures (PCE) Price Index data for May, scheduled for Friday.
The core PCE inflation data, which is closely monitored by the Federal Reserve (Fed), is anticipated to have slowed to 2.6% year-over-year (YoY) from April's figure of 2.8%. Monthly, the underlying inflation is expected to have increased modestly by 0.1%, compared to the previous rise of 0.2%.
Weak inflation numbers could increase expectations of earlier rate cuts by the Fed. Conversely, strong figures could reduce prospects of rate cuts and bolster the US Dollar's attractiveness. Currently, the US Dollar Index (DXY), reflecting the Greenback's performance against major currencies, is trading near the significant resistance level of 106.00.
According to the CME FedWatch tool, market expectations derived from 30-day fed funds futures indicate that traders have priced in two rate cuts this year, with the easing cycle potentially commencing at the September meeting. In contrast, Federal Reserve officials have expressed a preference to maintain current interest rates until they are confident that inflation will decrease to their target of 2%.
Federal Reserve Governor Michelle Bowman reiterated on Thursday that the central bank is not yet inclined to lower interest rates, cautioning about potential future rate hikes if progress towards lower inflation stalls or reverses.
Paraphrasing text from "FX Street" all rights reserved by the original author.