The Pound Sterling (GBP) has seen a slight increase against the US Dollar (USD) during Wednesday’s trading session in London, recovering from a near four-week peak of 1.2850 earlier this week. The GBP/USD currency pair continues to hold appeal, fueled by robust speculation that the Federal Reserve (Fed) may initiate interest rate reductions at the September meeting.
Despite Fed Chair Jerome Powell’s reaffirmation during his biannual Congressional testimony on Tuesday, where he avoided outlining a definitive plan for rate cuts this year, expectations for the Fed to shift towards policy normalization remain strong. Powell advocated for keeping interest rates steady for an extended period until there is substantial evidence pointing to inflation reverting to the target rate of 2%.
Surprisingly, Powell’s Congressional remarks included an admission that the US economy has cooled down, with the job market showing signs of relaxation to pre-pandemic levels.
Given the now balanced risks, the market is increasingly convinced of a potential rate cut by the Fed in September. Investors are now looking towards the upcoming US Consumer Price Index (CPI) report for June, set to be released on Thursday, for further insight. The report is anticipated to reveal that core inflation, excluding the more volatile food and energy sectors, rose modestly by 0.2% monthly and 3.4% yearly. The overall annual inflation rate is expected to have slowed to 3.1% from the previous 3.3%, while the monthly rate is projected to show minimal growth, having remained stable previously. Should inflation pressures persist or intensify, it could temper expectations for a rate cut in September, whereas weaker figures are likely to reinforce them.