- Pound Sterling is facing pressure against the US dollar, currently at about 1.3330, with the August US PCE price index data pending.
- The US economy showed strong growth of 3.8% in the second quarter.
- Megan Greene, a member of the Bank of England’s Monetary Policy Committee, cautions about rising inflation risks.
During the European trading session on Friday, Pound Sterling (GBP) was around 1.3330 against the US dollar (USD), slightly above its seven-week low of 1.3324 recorded on Thursday. The GBP/USD pair is under pressure as the dollar maintains its strength in anticipation of the upcoming US personal consumption expenditures (PCE) data.
The US Dollar Index (DXY), which gauges the dollar against six major currencies, is holding around its recent four-week high of approximately 98.40.
Investors are closely watching the US PCE inflation data for insights on whether the tariffs imposed by President Trump are still contributing to price pressures. Many officials from the Federal Reserve have recently emphasized the need for potential interest rate cuts due to rising inflation risks.
Core PCE inflation, which the Fed considers a key indicator, is expected to have increased by a moderate 0.2% month-over-month, compared to the previous estimate of 0.3%, with annual inflation ticking up to 2.9%.
If price pressures show signs of easing, it could influence market expectations for further Fed interest rate cuts this year. Last week, the central bank implemented its first rate cut, reducing the rate by 25 basis points to a range of 4.00% to 4.25%. Conversely, strong inflation figures would likely temper those dovish expectations.
According to the CME FedWatch tool, the likelihood of the Fed cutting rates by 50 basis points by the year’s end has dropped to 62% from 78.6% the previous week.
Daily Digest Market Mover: Sterling trading slightly higher
- On Friday, Pound Sterling is likely to trade higher against key peers as investors expect the Bank of England (BOE) to maintain a stable rate of 4% through the year. Given the persistent inflation in the UK economy, significant rate cuts from the BOE seem improbable in the near term.
- Megan Greene voted to keep rates steady at the BOE’s recent meetings, cautioning about inflation risks and suggesting that trade pressures from the US tariffs have been substantial, though a recovery seems likely.
- Despite Greene’s concerns, the BOE’s monetary policy statement indicated that consumer inflation peaked around 4% in September.
- On the US dollar side, major currencies saw some recovery following revisions to GDP data and unemployment claims for the week ending September 20.
- Revised GDP figures showed a growth rate of 3.8%, surpassing an earlier estimate of 3.3%. Additionally, first-time unemployment claims were lower than expected at 218,000, whereas economists had forecasted 235,000.
- Concerns over US tariffs have resurfaced as Trump has imposed new import duties on various goods, including pharmaceuticals and heavy trucks.
Technical Analysis: Pound Sterling struggles below 1.3300
The Pound is facing challenges near its seven-week low of around 1.3330 against the US dollar on Friday. The GBP/USD pair has weakened after failing to maintain an upward channel and experiencing a bearish reversal.
In the short term, the trend appears bearish, with the price sitting below the 20-day exponential moving average (EMA).
The 14-day relative strength index (RSI) is below 40.00, which typically signals a potential for fresh bearish momentum.
Looking down, the lowest value from August 1, at 1.3140, is a critical support level, while a psychological barrier at 1.3500 looms above.
