The Pound Sterling has declined from a two-year high against the US Dollar due to the latter gaining temporary ground. Economists predict that annual core PCE inflation will increase to 2.7%. Investors are eagerly awaiting Catherine Mann’s speech at 12:15 GMT for clues on the Bank of England’s interest rate path.
The US Dollar Index has experienced some buying interest, leading to a temporary recovery after hitting a year-to-date low. Despite this recovery, the near-term outlook for the US Dollar is negative, as the Federal Reserve is expected to lower interest rates at the September meeting. Traders are debating the size of the rate cut, with some expecting a 50-basis points reduction while others anticipate a 25 bps cut.
Economists expect core PCE inflation to have risen year-on-year by 2.7%, which could impact the Fed’s decision on future rate cuts. A decrease in inflation could lead to speculation of a large rate cut, while persistent inflation would support a smaller reduction in borrowing costs.
The Pound Sterling’s performance has been mixed against major currencies, with investors eagerly anticipating fresh clues on the Bank of England’s interest rate path. The BoE recently reduced interest rates by 25 bps and is expected to continue at a slower pace than other central banks due to the UK economy’s stability. Catherine Mann’s upcoming speech will provide insight into the BoE’s future actions.
Despite the uncertainties, Prime Minister Keir Starmer’s comments on the financial budget outlook, promising long-term gains despite short-term pain, have improved the Pound Sterling’s appeal. The ongoing focus on inflation, wage pressures, and interest rates will play a significant role in determining the Pound Sterling’s future trajectory.
In the technical analysis, the Pound Sterling remains on an upward trend, with the GBP/USD pair expected to reach a high of 1.3640. The 20-week Exponential Moving Average and the Relative Strength Index suggest a strong upside momentum, although a corrective pullback is possible. The psychological support level of 1.3000 will be crucial for Pound Sterling bulls in the near term.
