Market Analysis

The Pound Sterling (GBP) is experiencing selling pressure near the significant resistance level of 1.3400 against the US Dollar (USD) during Friday’s London session. The upward momentum of the GBP/USD pair seems to have halted as investors await the release of the US Personal Consumption Expenditure Price Index (PCE) data for August, scheduled for publication at 12:30 GMT.

The core PCE index, which is the Federal Reserve’s (Fed) preferred measure of inflation, is projected to have increased by 2.7% year-over-year, up from the 2.6% rise reported in July. Month-over-month, prices are anticipated to have grown steadily by 0.2%.

This data is expected to impact market speculation regarding potential interest rate cuts by the Fed in November. Currently, market expectations are nearly evenly divided between a 50 basis point cut and a smaller 25 basis point reduction.

As per the CME FedWatch tool, the likelihood of the Fed implementing a 50 basis point cut in November has decreased to 51%, down from 57% on Thursday. Should the PCE data indicate a further decline in inflationary pressures, expectations for a substantial rate cut could increase. Conversely, stronger inflation figures may diminish the likelihood of this scenario.

The importance of US inflation data has lessened recently, as Fed officials express confidence that price pressures will align with the bank's 2% target. Additionally, policymakers are becoming more cautious regarding labor market risks. Last week, the Fed initiated a policy easing cycle with an unusually large interest rate cut of 50 basis points, bringing rates to 4.75%-5.00%, signaling a commitment to bolster labor market strength.

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