Pound Sterling holds 1.3150 with US core PCE inflation under spotlight

The Pound Sterling bounces back from 1.3150 as the US Dollar trades subdued ahead of US core PCE inflation data for July.
Investors see the annual core PCE inflation accelerating to 2.7% from 2.6% in June.
The policy-easing spell from the BoE is expected to be slower than that of its major peers.

The Pound Sterling (GBP) performs strongly against its major peers on Friday, with investors gaining confidence that the policy-easing cycle by the Bank of England (BoE) will be gradual in the remainder of the year compared with that of its peer central banks.

According to money market pricing data, the BoE is expected to cut interest rates by 40 bps in the remaining year, while the European Central Bank (ECB) is projected to do the same by 65 bps, Reuters reported. In the same time frame, the Fed is estimated to cut its key borrowing rates by 100 bps, according to the CME FedWatch tool.

Firm speculation for BoE’s shallow policy-easing cycle is the result of the improved economic outlook in the United Kingdom (UK). In July, the International Monetary Fund (IMF) raised the Gross Domestic Product (GDP) target for this year to 0.7%. Fiscal plans of the new Labour government led by Prime Minister Keir Starmer, which include planning reform and closer trade ties with the European Union, will prompt economic activity, analysts at Goldman Sachs said.

British Pound PRICE Today

The table below shows the percentage change of the British Pound (GBP) against listed major currencies today. British Pound was the strongest against the Japanese Yen.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.02%	-0.07%	0.16%	-0.07%	-0.07%	-0.03%	0.12%
EUR	0.02%		-0.05%	0.16%	-0.05%	-0.06%	-0.02%	0.15%
GBP	0.07%	0.05%		0.23%	0.00%	0.00%	0.03%	0.20%
JPY	-0.16%	-0.16%	-0.23%		-0.21%	-0.21%	-0.19%	-0.01%
CAD	0.07%	0.05%	0.00%	0.21%		-0.01%	0.04%	0.20%
AUD	0.07%	0.06%	-0.01%	0.21%	0.01%		0.02%	0.19%
NZD	0.03%	0.02%	-0.03%	0.19%	-0.04%	-0.02%		0.17%
CHF	-0.12%	-0.15%	-0.20%	0.01%	-0.20%	-0.19%	-0.17%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the British Pound from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent GBP (base)/USD (quote).

Daily digest market movers: Pound Sterling to be influenced by speculation for BoE rate cuts

The Pound Sterling finds cushion near 1.3150 after a two-day sell-off against the US Dollar (USD) in Friday’s London session. The GBP/USD pair gains ground as the US Dollar exhibits a subdued performance in the countdown to the release of the United States (US) Personal Consumption Expenditure Price Index (PCE) data for July, which will be published at 12:30 GMT. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, falls slightly to 101.30.
Economists expect that the annual core PCE inflation, which excludes volatile food and energy prices, rose at a higher pace of 2.7% from June’s reading of 2.6%, with monthly figures growing steadily by 0.2%.
Historically, the impact of the PCE inflation data has been high as it is the Federal Reserve’s (Fed) preferred inflation gauge for decision-making on interest rates. This time, the impact of the underlying inflation data is expected to remain limited on the US Dollar and market speculation for the Fed’s interest rate cut path this year unless there is a significant deviation from estimates and the former release.
With increased confidence that inflation is on track to sustainably decline to the Fed’s target of 2%, officials are now worried about growing risks to US labor market strength. “The balance of risks to our mandate has changed”, said Fed Chair Jerome Powell last week in his speech at the Jackson Hole (JH) Symposium. The comments from some other Fed policymakers have also indicated that the central bank won’t hesitate to reduce its key borrowing rates aggressively in case of further evidence of a sharp deterioration in the labor market emerges.
Currently, financial market participants expect that the Fed is almost certain to start reducing interest rates in September. However, traders remain split over the likely size by which the Fed will begin its long-awaited policy-easing. According to the CME FedWatch tool, the probability of a 50-basis-points (bps) interest-rate reduction in September is 32.5%, while the rest are favoring a cut by 25 bps.

Technical Analysis: Pound Sterling holds above 1.3150

The Pound Sterling rebounds after a mild corrective move to near 1.3150 against the US Dollar. The near-term appeal of the GBP/USD pair remains firm as it holds the breakout of the Rising Channel chart formation on the weekly time frame. If bullish momentum extends, the Cable is expected to rise towards the psychological resistance of 1.3500 and the February 4, 2022, high of 1.3640 after breaking above a fresh two-and-a-half-year high of 1.3266 against the US Dollar.

The upward-sloping 20-week Exponential Moving Average (EMA) near 1.3000 suggests a strong upside trend.

The 14-period Relative Strength Index (RSI) oscillates in the bullish range of 60.00-80.00, suggesting a strong upside momentum. Still, it is close to overbought levels at around 70.00, increasing the chances of a corrective pullback. On the downside, the psychological level of 1.3000 will be the crucial support for the Pound Sterling bulls.

Economic Indicator

Core Personal Consumption Expenditures - Price Index (YoY)

The Core Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The PCE Price Index is also the Federal Reserve’s (Fed) preferred gauge of inflation. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The core reading excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures." Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

Why it matters to traders?

After publishing the GDP report, the US Bureau of Economic Analysis releases the Personal Consumption Expenditures (PCE) Price Index data alongside the monthly changes in Personal Spending and Personal Income. FOMC policymakers use the annual Core PCE Price Index, which excludes volatile food and energy prices, as their primary gauge of inflation. A stronger-than-expected reading could help the USD outperform its rivals as it would hint at a possible hawkish shift in the Fed’s forward guidance and vice versa.

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