GBP/USD has reached 1.3900 for the first time in a year, with US PPI producer-level inflation rising faster than expected in June. Despite concerns about inflation risks, markets are hopeful for a rate cut from the Federal Reserve (Fed) in September.
The US Dollar weakened as investors anticipate a potential rate cut from the Fed in September. The recent uptick in Producer Price Index (PPI) wholesale inflation in June, exceeding expectations, could impact key Fed inflation metrics. However, the focus has shifted to a potential rate cut following a decrease in Consumer Price Index (CPI) inflation earlier in the week.
The CME’s FedWatch tool indicates a high probability of a quarter-point rate cut at the FOMC meeting on September 18. Rate traders are pricing in at least three rate cuts by 2024, more than the Fed’s projections.
US economic data released showed a drop in the University of Michigan’s Consumer Sentiment Index to a seven-month low, reflecting consumer pessimism about the economic outlook. Long-term consumer inflation expectations remain above the Fed’s target rate.
Next week, the UK will release its Consumer Price Index (CPI) inflation data, followed by labor market data and Retail Sales. In the US, Retail Sales data will be released early in the week.
GBP/USD technical outlook shows a strong rally, with the pair aiming for the 1.3000 level. The currency pair has seen significant gains in July and is currently above the 200-day Exponential Moving Average (EMA).
In conclusion, GBP/USD is on an upward trend, driven by market expectations of a Fed rate cut. The focus is on upcoming economic data releases and central bank decisions that could impact the currency pair’s movement.