Pound Dips as Rate Cut Expectations Ease

Fundamental Analysis

* Declining Odds: The pound sterling extended its losses against the U.S. dollar after the release of the U.S. PCE Price Index data, which dampened expectations of a Fed rate cut. The PCE inflation report revealed that core inflation, excluding volatile food and energy prices, came in at 2.6%, slightly below the estimated 2.7%. On a monthly basis, underlying inflation increased by 0.2%, aligning with expectations. Market participants now anticipate that the Fed is likely to begin reducing interest rates in September. However, persistent price pressures indicated by the PCE inflation data have reduced the likelihood of the Fed initiating an aggressive policy-easing cycle. The CME FedWatch tool shows that the probability of a 50 basis points (bps) rate cut has decreased to 30.5% from 36% a week ago.

Technical Analysis

* Technical Breakout: GBPUSD was traded lower following prior breakout below the previous support level 1.31450. MACD which illustrate ongoing bearish momentum signal suggest the pair to likely further extend its losses

* Resistance and Support: If the bearish momentum persists, there’s a strong likelihood that the price will potentially head towards 1.30450. Conversely, a potential reversal is also to be expected and the price could head back towards 1.32650 after it breach back above the level at 1.31450.

Potential Risks

Looking ahead, investors will focus on key upcoming U.S. data, including ISM Manufacturing PMI, ADP Nonfarm Employment Change, and Nonfarm Payrolls, to assess the likelihood of a Fed rate cut and also evaluate the pair’s momentum.

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Monitoring

Stay updated on US data and UK, central bank updates and any shifts in the US Dollar’s strength by following PU Xtrader’s financial news page.

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