- GBP/USD may gain more support as recent US inflation figures bolster expectations for a Federal Reserve rate cut in September.
- The US Consumer Price Index increased by 2.7% year-on-year in July, slightly below the anticipated 2.8% rise.
- Latest employment statistics in the UK might allow Bank of England officials to adopt a “gradual and careful” approach to monetary expansion.
GBP/USD stayed steady, having gained 0.5% in the prior session, and was trading around 1.3500 during Asian trading hours on Wednesday. The pair is benefiting from a weakening US dollar, which has been influenced by recent inflation data, fostering optimism regarding a potential rate cut by the Federal Reserve this September.
The Consumer Price Index (CPI) in the US rose by 2.7% year-on-year in July, short of the expected 2.8% increase, matching the growth from the previous month. Meanwhile, the CORE CPI saw an annual increase of 3.1% in July, which, while higher than the market consensus of 3%, stands above the 2.9% rise recorded in June.
Current expectations, as indicated by the CME FedWatch tool, suggest there is about a 94% likelihood of a rate reduction at the Fed’s September meeting. Recent comments from Fed Governor Michelle Bowman indicated that three interest rate reductions this year may be appropriate.
The strengthening of GBP/USD correlates with positive labor market data from the UK, which could enable Bank of England (BOE) officials to uphold a “gradual and prudent” strategy regarding monetary policy. The UK’s employment figures reported the creation of 239,000 jobs in the second quarter, exceeding the 134,000 new jobs reported for the three months ending in May. The ILO unemployment rate remained steady at 4.7%. Additionally, claims for unemployment benefits decreased by 6.2k in July, although a rise to 20.8k had been anticipated. Traders are likely to shift their focus to upcoming UK Q2 Gross Domestic Product (GDP) and factory data to be released on Thursday.
