- GBP/USD rebounds towards 1.3550 as greenback weakens after mixed US inflation figures.
- The US August CPI data showed that the headline inflation is growing more than expected, but a stable core print shows reinforced expectations that Fed would cut the 25-base-point rate next week.
- Bank of England is expected to keep the bank rate unchanged at 4.00% next week, as policy makers take a more cautious approach amidst the increase in the increment of the British.
The British Pounds (GBP) receives traction against the US Dollar (USD) on Thursday, reversing earlier damage with GBP/USD as investors digested a mixed American inflation report that failed to shake the expectations of a Federal Reserve (FED) interest rate next week. At the time of writing, the pair is trading around 1.3540, which is decisively recovering with intraday climb near 1.3493.
The US Consumer Price Index (CPI) increased 0.4% mother in August, defeating 0.3% forecast and faster than 0.2% in July, operated largely with high energy and shelter costs. On an annual basis, the headline CPI kept stable at 2.9% in accordance with expectations, but earlier marked a significant increase from 2.7%.
However, the core CPI, which removes food and energy prices and is more closely viewed by Fed, 0.3% mother and 3.1% yoy, both matches both forecasts and July readings.
Despite the reverse surprise in headline inflation, the stable core CPI print reinforced the market expectations that Fed would proceed with the 25 base point rate cut in its monetary policy meeting next week. The recent dowish signals from the Fed officials have strengthened the case to make the policy easier by the recent dowish signals, soft labor market data and a weak-to-approved manufacturer price index (PPI).
Traders now see very little justification for more aggressive cuts, particularly contained with underlying inflation. According to CME’s Fedwatch Tool, the possibility of cutting the 25 base point rate in September increased from 90% to 94% before release. Traders also continue to price completely in three rate cuts by the end of 2025, showing confidence that the trend of disintegration remains widely intact.
The focus now turns into Bank of England (BOE), which is ready to announce its policy decision on 18 September, a day after the Fed. BOE is expected to leave the unchanged bank rate at a widely 4.00%, already five cuts were already made earlier this year. As the BOE remains stable, while the BOE remains stable, can provide close-term support for GBP/USD, as the rate difference differences in sterling’s side works.
(This story was corrected on 11 September 14:00 GMT to say that CME Fedwatch Tool showed 94% probability of cutting 25 base point rate in September, not December.)
