Pound sterling rises to around 1.3150 against the US dollar as traders increase their bets on a Fed interest rate drop of 50 basis points for next week’s meeting.
In Friday’s London session, the pound sterling (GBP) extended its recovery to around 1.3150 against the US dollar (USD).
Investors believe the Bank of England will not lower interest rates next week.
The GBPUSD pair rises as the US Dollar (USD) falls strongly following August’s US Producer Price Index (PPI) data, which sparked market predictions that the Federal Reserve (Fed) will begin rapidly lowering interest rates next week.
The US dollar The Dollar Index (DXY), which analyzes the value of the US dollar against six major currencies, falls further, approaching 101.00.
Slowed US annual PPI in August prompted the Fed’s significant rate decrease expectations.
According to the PPI report, annual headline producer inflation increased by 1.7%, slower than expected (1.8%) and 2.1% in July. During the same period, the core PPI, which includes volatile food and energy costs, increased gradually by 2.4%. Investors predicted the core PPI to increase to 2.5%. Meanwhile, the monthly headline and core PPIs increased at a quicker rate of 0.2% and 0.3%, respectively.
According to the CME FedWatch tool, the probability of the Fed cutting interest rates by 50 basis points (bps) to 4.75%-5.00% in September has risen substantially to 43%, up from 14% before to the release of US PPI data.
In the Friday session, Investors will be looking at the preliminary Michigan Consumer Sentiment Index data for September. The sentiment data is expected to have remained nearly constant at 68.0 from the previous publication of 67.9.
Daily market movers: Pound Sterling outperforms the US Dollar.
On Friday, the pound sterling outperformed its major peers. The British pound is strengthening due to a number of positive factors. Growing optimism that the Fed may decrease interest rates rapidly has improved market mood. Furthermore, strong expectations for the Bank of England (BoE) to maintain a shallow policy-easing cycle have boosted the Pound Sterling.
Historically, the prospect of the Fed shifting toward policy normalization has increased the attraction of risky assets.
Historically, the prospect of the Fed shifting toward policy normalization has increased the attraction of risky assets. S&P 500 futures have seen minor gains in the Asian session after A bullish Thursday suggests an increase in investors’ risk appetite.
According to a Reuters poll, the BoE is unlikely to lower interest rates at its next policy meeting, which is planned for next week. All 65 economists polled by Reuters indicated the BoE would likely keep interest rates at 5.0% on Thursday, down from a 16-year high of 5.25% in August.
Meanwhile, the next significant trigger for the pound sterling will be the August Consumer Price Index (CPI) data from the United Kingdom (UK). Which will be release on Wednesday. The latest BoE prediction indicates that the UK annual headline inflation will remain above 2% by the end of the year.
