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- GBP/USD gains traction around 1.3415 in Monday’s early Asian session.
- Softer US PCE inflation fueled confidence in further Fed monetary easing.
- The BoE maintains a “gradual and careful” approach to potential future rate cuts.
The GBP/USD pair edges higher to near 1.3415 during the early Asian session on Monday. The US Dollar (USD) weakens against the Pound Sterling (GBP) as the US August inflation report reinforced market expectations that the US Federal Reserve (Fed) will likely proceed with another interest rate cut in October.
The US Personal Consumption Expenditures (PCE) Price Index rose 2.7% year-over-year in August, compared to 2.6% in the previous reading, according to the US Bureau of Economic Analysis on Friday. This figure was in line with analyst forecasts. The core PCE, which excludes food and energy prices, came in at 2.9% YoY during the same period, also matching expectations.
The Fed delivered its first cut in the monetary policy meeting in the September meeting, reducing rates by 25 basis points (bps) to 4.00%-4.25%. Markets are now pricing in nearly an 88% chance of a Fed rate cut in October and a 65% possibility of another reduction in December, according to the CME FedWatch Tool.
On the GBP’s front, traders anticipate the Bank of England (BoE) to hold interest rates steady at 4.0% in the remainder of the year, which provides some support to the Cable. The UK central bank is unlikely to cut rates in the near term as inflationary pressures in the UK economy are proving to be persistent.
Looking ahead, the Fedspeak will be closely watched later on Monday. Fed officials are scheduled to speak, including Fed Governor Christopher Waller, Cleveland Fed President Beth Hammack, St. Louis Fed President Alberto Musalem, New York Fed President John Williams, and Atlanta Fed President Raphael Bostic. If the policymakers deliver hawkish remarks, this could lift the Greenback and cap the upside for the major pair.
