The Pound Sterling (GBP) exhibited sideways movement after reaching a fresh monthly high near 1.2700 against the US Dollar (USD) during Thursday’s London session. With uncertainty lingering over the timing of potential rate cuts by the Bank of England (BoE), the near-term outlook for the GBP/USD pair remains positive, fueled by resilient United Kingdom (UK) wage growth.
UK Average Earnings saw steady growth in the three months ending March, raising concerns regarding progress towards achieving the desired inflation rate of 2%. Robust wage growth has contributed to service inflation, posing a significant obstacle to the disinflation process.
Looking ahead, the UK economic calendar offers minimal data, prompting investors to closely monitor commentary on interest rates from BoE policymakers. Megan Greene and Catherine Mann are scheduled to speak on Thursday and Friday, respectively, providing insights into the central bank‘s stance.
In the broader market context, the Pound Sterling continues to trade near the key resistance level of 1.2700 against the US Dollar, buoyed by bullish market sentiment amid speculation of potential interest rate cuts by the Federal Reserve (Fed) starting from its September meeting. S&P 500 futures registered gains in the European session, indicating improved risk appetite among investors.
According to the CME FedWatch tool, the probability of interest rate cuts in the September meeting has risen to 73%, reflecting increased investor confidence in Fed rate cuts. Soft US inflation data, sluggish labor market conditions, and stagnant Retail Sales for April have bolstered expectations of a dovish Fed stance.
The latest report from the US Bureau of Labor Statistics (BLS) revealed that annual headline and core Consumer Price Index (CPI) grew at a slower pace as expected. While inflation remains above the target rate of 2%, anticipated declines in price pressures have bolstered investor confidence in a sustainable return to the desired inflation rate.
Retail Sales data for April, indicating no change despite expectations of a rise, has softened the inflation outlook further. Moving forward, market focus will be on commentary from Fed policymakers regarding interest rate guidance, with several key figures scheduled to speak on Thursday. Additionally, investors will closely monitor Initial Jobless Claims data for insights into the health of the US labor market.
