During early Asian trading hours on Friday, the GBP/USD pair languished on a weaker note around 1.2502. Despite softer US GDP growth figures, a modest rebound in the US Dollar (USD) exerted pressure on the major pair. The market awaits the release of US Personal Consumption Expenditures (PCE) Price Index data, expected to command attention.
The US economy expanded at a slower pace of 1.6% in the first quarter (Q1) of 2024, down from 3.4% in the previous reading, falling short of the market’s 2.5% expectation. However, inflationary pressures persisted, with the Q1 Personal Consumption Expenditures Price Index climbing at a 3.4% annual rate, surpassing the Fed‘s 2% target. Consequently, the Greenback slipped to two-week lows near mid-105.00 following the release of weaker Q1 GDP growth and higher-than-anticipated inflation data.
According to the CME FedWatch tool, financial markets have priced in less than a 10% likelihood of a US Federal Reserve (Fed) interest rate cut in June, with the probability of a September rate cut dropping below 58%. Investors eagerly await another inflation report on Friday, with the US PCE expected to reflect a 0.3% MoM increase in both headline and core figures. On an annual basis, headline PCE and Core PCE figures are projected to exhibit rises of 2.6% and 2.7% YoY, respectively.
Meanwhile, on the GBP front, Bank of England (BoE) Governor Andrew Bailey and other policymakers indicated that UK inflation had declined in line with the central bank‘s projections, reducing the risk of elevated inflation and paving the way for a potential rate cut. Market sentiment suggests the UK central bank may defer rate adjustments until the next quarter, possibly preceding actions by the US Fed. This expectation could act as a limiting factor on the upside potential of the Pound Sterling (GBP).
