The Pound Sterling is facing significant pressure against the US Dollar, hovering around 1.3330 as market participants prepare for the release of the US Personal Consumption Expenditure (PCE) Price Index data for August. The pair fell to a seven-week low of 1.3324 on Thursday, driven by a strong performance from the US Dollar, which has seen the US Dollar Index (DXY) reach a fresh four-week high of approximately 98.40.
As investors anticipate the PCE inflation data, expectations are high regarding the implications of tariffs imposed by President Trump and their potential impact on price pressures. Recent comments from Federal Reserve officials suggest a cautious stance on future interest rate cuts, indicating that inflation risks might be tilting upwards. Current projections suggest that core PCE inflation may have risen at a monthly rate of 0.2%, down from 0.3% previously, with year-over-year figures expected at 2.9%. Should the data indicate easing inflationary pressures, this might enhance market expectations for additional rate cuts by the Federal Reserve before the year’s end. Following a rate reduction of 25 basis points in last week’s meeting, the probability of further cuts by the Fed by year’s close has decreased from 78.6% to 62%.
In contrast, the Pound has seen some modest gains against its major peers, reflecting expectations that the Bank of England (BoE) will maintain interest rates at 4% for the foreseeable future. The BoE appears unlikely to implement any cuts soon, as inflationary pressures in the UK continue to persist. Megan Greene, a member of the BoE’s Monetary Policy Committee, highlighted the need for caution regarding monetary policy adjustments, citing potential upside inflation risks. She pointed out that the adverse effects of the US tariffs on global trade seem to be diminishing, with a rebound in economic growth anticipated. Greene emphasized the BoE’s expectations for continued recovery without substantial risks to the labor market.
Despite Greene’s cautious outlook, the BoE’s recent monetary policy statement indicated that consumer inflation could peak around 4% in September. Meanwhile, the US Dollar strengthened on Thursday following the release of revised Q2 Gross Domestic Product data, which revealed a more robust economic growth rate of 3.8% compared to the preliminary estimate of 3.3%. Additionally, Initial Jobless Claims were reported at 218,000, falling below the anticipated 235,000, signaling strength in the labor market.
Concerns over renewed US tariff measures have surfaced as President Trump raised import duties on pharmaceuticals, heavy-duty trucks, and furniture, which may further complicate the economic landscape.
From a technical perspective, the Pound Sterling appears to be in a bearish trend, with the GBP/USD pair breaking down from a Rising Channel formation. The pair remains below the 20-day Exponential Moving Average, currently around 1.3488. The Relative Strength Index has also dipped below 40, suggesting that if this momentum continues, further downside could be anticipated. Key support is identified at the August 1 low of 1.3140, while a psychological resistance level lies at 1.3500.
