Market Analysis

The Pound Sterling (GBP) dipped slightly during Wednesday's London session but managed to hold onto recent gains against the US Dollar (USD), trading close to the significant level of 1.3400. The GBP/USD pair remains resilient as the US Dollar continues to weaken, approaching its yearly low due to expectations that the Federal Reserve (Fed) may implement another substantial interest rate cut in one of the two remaining policy meetings this year.

The US Dollar Index (DXY), which measures the Greenback's performance against six major currencies, is currently around 100.20.

Last week, the Fed initiated a cycle of policy easing by reducing interest rates by 50 basis points (bps), bringing them to a range of 4.75%-5.00%, in an effort to bolster labor market strength. The Fed expressed confidence that inflation will sustainably revert to its target of 2%. Among the 12 members of the Federal Open Market Committee (FOMC), only Fed Governor Michelle Bowman advocated for a gradual start to the rate-cutting process with a typical 25 bps reduction.

According to the CME FedWatch tool, the central bank is anticipated to further lower its key borrowing rates by a total of 75 bps this year, which includes one 50 bps cut and one 25 bps cut. Data from the 30-day Federal fund futures indicates that the likelihood of a 50 bps reduction in November has risen to 59%, up from 37% just a week ago.

Looking ahead, investors are set to focus on the upcoming US core Personal Consumption Expenditures Price Index (PCE) data for August, which is the Fed’s preferred measure of inflation, scheduled for release on Friday. Economists predict that the core annual inflation rate will increase to 2.7% from 2.6% in July.

Paraphrasing text from "FX Street" all rights reserved by the original author.