The GBP/USD pair is trading with a negative bias for the second consecutive day on Friday, despite being able to maintain its trades above the daily low.
Prices are currently moving around the 1.2680 area and seem poised to post modest weekly gains amid the weak price action of the US dollar.
The Federal Reserve’s hawkish stance supported the recent selling and decline. Additionally, new selling around the Japanese Yen (JPY), due to the Bank of Japan’s (BoJ) inaction, provides some support to the US dollar and pressures the GBP/USD pair.
However, indications of easing inflationary pressures in the United States remain present and support hopes for a rate cut by the Federal Reserve in September, which would put a cap on the dollar’s strength and act as upward support for the currency pair.
Later on Friday, the preliminary Michigan Consumer Sentiment report in the US is scheduled to be released, followed by a speech from the Chicago Federal Reserve President, Austan Goolsbee.
The US Federal Reserve indicated that it would cut the main interest rate only once by 25 basis points near the end of 2024, despite the decline in inflation. The Fed’s hawkish expectations have boosted the dollar across the board and negatively pressured the GBP/USD pair, despite weaker-than-expected US economic data released on Thursday.
The US Producer Price Index (PPI) rose by 2.2% year-on-year in May, compared to a 2.3% increase in April (revised from 2.2%), which is below market expectations of 2.5%, according to the US Bureau of Labor Statistics on Thursday.
The core PPI rose by 2.3% year-on-year in May, lower than the estimates and the previous reading of 2.4%. Every month, the PPI declined by 0.2% in May, while the core PPI remained unchanged at 0%.
Additionally, the initial weekly jobless claims for the week ending June 6th rose by 242,000 from the previous week’s reading of 229,000. This figure was higher than the market consensus of 225,000.
In my opinion, the increasing expectations that the Bank of England (BoE) will start cutting interest rates in the August or September meeting are exerting some selling pressure on the British Pound (GBP). Market traders have raised their expectations for a BoE rate cut due to stagnant UK monthly GDP figures for April.
While we are seeing some initial signs of a slowdown in the labour market, inflation in the services sector remains persistently high, and the Monetary Policy Committee is likely to wait for the next set of forecasts and a few more data points before starting its first rate cut. From my perspective, the BoE might cut rates before the Fed, just as the European Central Bank did.
