The GBP/USD pair has edged down to 1.3310, ending a three-day winning streak during the early Asian session on Monday. The modest recovery of the US Dollar (USD) is putting pressure on the currency pair as investors await the flash readings of the UK and US Purchasing Managers Index (PMI) data scheduled for release later today.
Last week, the US Federal Reserve (Fed) implemented a half-percentage point cut to its key overnight borrowing rate, marking its first interest rate reduction since the early days of the COVID-19 pandemic. The Fed’s statement highlighted increased confidence that inflation is moving sustainably toward its 2% target, indicating that the risks to employment and inflation goals are approximately balanced.
Despite this, Fed Chair Jerome Powell remained cautious, avoiding any declarations of victory over inflation as pricing pressures continue to diminish. The upcoming release of the US Personal Consumption Expenditures (PCE) index on Friday, which is the Fed’s preferred inflation measure, could provide insights into the inflation trajectory and the broader interest rate outlook.
Meanwhile, the uncertainty surrounding the US economic outlook and rising expectations for further rate cuts later this year are likely to continue exerting downward pressure on the USD against the Pound Sterling (GBP).
On the UK side, Bank of England (BoE) Governor Andrew Bailey emphasized the importance of keeping inflation low, cautioning against rapid or excessive interest rate cuts. The BoE recently decided to maintain interest rates at 5.0% following the release of UK Consumer Price Index (CPI) data, which held steady at 2.2% year-on-year in August.
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