Market Analysis

Pound Sterling falls from fresh highs as focus shifts to US core PCE inflation

Amos Simanungkalit · 28 Aug 202413.7K Views

The Pound Sterling (GBP) has retreated from a more-than-two-year high of 1.3266 against the US Dollar (USD) during Wednesday’s London session. The GBP/USD pair weakened as the US Dollar regained some ground, with investors shifting their focus to the upcoming US core Personal Consumption Expenditure (PCE) Price Index data for July, scheduled for release on Friday. This data is anticipated to be a significant catalyst for the pair.

The US Dollar Index (DXY), which measures the Greenback’s strength against six major currencies, found some buying interest after hitting a fresh year-to-date (YTD) low at 100.50, as value-buying emerged.

Despite the recent rebound, the near-term outlook for the US Dollar remains bearish, as investors largely expect the Federal Reserve (Fed) to lower interest rates at its September meeting. The debate among traders now centers on whether the Fed will opt for a substantial rate cut or maintain a more modest reduction.

According to the CME FedWatch tool, 30-day Federal Funds Futures data indicates a 34.5% probability of a 50-basis points (bps) rate cut in September, with the majority expecting a 25 bps cut.

Regarding core PCE inflation, economists predict that the Fed’s preferred inflation measure likely increased to 2.7% year-on-year in July, up from 2.6% in June, with monthly growth steady at 0.2%. Persistent inflationary pressures would dampen market expectations for a significant rate cut, while a further decrease in price pressures would bolster them.