The Pound Sterling experienced a drop in value, falling to 1.2750 against the US Dollar after reaching a 10-week high at 1.2800. This correction was prompted by a soft UK inflation outlook and a recovery in the US Dollar. The British Retail Consortium (BRC) reported that shop prices for food and non-food items in the UK grew at the slowest pace since November 2021, which could lead to rate cuts by the Bank of England (BoE) as early as August.
Market sentiment turned cautious as investors await the Federal Reserve’s (Fed) decision on interest rates, with expectations that they will not be reduced before the fourth quarter of the year. Traders are unwinding their bets on interest rate cuts as Fed policymakers want to see a decline in price pressures before considering any adjustments. The possibility of rate cuts in September has decreased to 44%, down from 58% the previous week, as Fed Bank President Neel Kashkari emphasized the need for significant progress in disinflation.
Investors are closely watching the release of the core Personal Consumption Expenditure Price Index (PCE) data for April on Friday to gain insights into the Federal Reserve’s interest rate outlook. A steady inflation growth is expected, which could influence the likelihood of interest rates remaining at higher levels. Technical analysis shows that the Pound Sterling is facing selling pressure near 1.2800 but is expected to continue in a bullish trajectory, supported by strong uptrend signals from short-to-long-term Exponential Moving Averages (EMAs) and a bullish 14-period Relative Strength Index (RSI).
The Core Personal Consumption Expenditures (PCE) Price Index, released by the US Bureau of Economic Analysis, measures changes in the prices of goods and services purchased by consumers in the US. This index is the Federal Reserve’s preferred gauge of inflation and excludes volatile components such as food and energy to provide a more accurate measurement of price pressures. A high reading is bullish for the US Dollar, while a low reading is bearish. Investors will be closely monitoring the YoY reading of the PCE Price Index to gauge the impact on the market and make informed trading decisions.
