Pound sterling trades sideways around 1.3200 against the US dollar, with investors watching the US core PCE inflation data for July.

In Tuesday’s London session, the British pound (GBP) held gains near the round level mark of 1.3200 against the US dollar (USD). The GBPUSD pair is taking a breather following last week’s significant gain, with investors seeking for new clues about the extent of the Federal Reserve’s (Fed) interest rate cut in September.

The Fed’s Mary Daly left the door open for significant policy easing if the US labor market deteriorated.

According to the CME FedWatch tool, 30 days According to Federal Funds Futures price data, the probability of a 50-basis-point (bps) interest-rate cut in September is 28.5%, with the remainder favoring a smaller 25-bps cut. The tool unmistakably reveals that traders have completely priced in the Fed’s return to policy normalization, a move that has kept the US Dollar under pressure for more than a week.
The US Dollar Index (DXY), which analyzes the value of the US dollar versus six major currencies, is trading below its immediate resistance level of 101.00.
On Monday, San Francisco Fed President Mary Daly stressed the importance of cutting interest rates in September. Daly backed a 25 basis point interest rate drop, but left the door open for a larger one if the labor The market is deteriorating, she remarked in an interview with Bloomberg.
Investors’ confidence in the Fed’s ability to reduce interest rates beginning in September increased after Fed Chair Jerome Powell stated in a speech at the Jackson Hole (JH) Symposium on Friday that the time has come for policy to adjust. Jerome Powell also expressed concern about weakening labor market conditions and committed to assist them.

This week, investors will be closely watching the United States’ (US) core Personal Consumption Expenditure Price Index (PCE) data for July, which will be released on Friday. Annual core PCE is expected to have advanced to 2.7% from 2.6% in the previous release, with monthly readings rising consistently by 0.2%. Prior to it, the US economic calendar will present Tuesday marks the release of the S&P/Case-Shiller Home Price Indices for June and the Conference Board’s Consumer Confidence Index for August.

Daily Market movers: Pound Sterling surpasses key peers.

On Tuesday, the pound sterling strengthened versus its major peers, with the exception of Asia-Pacific currencies. The British pound benefits from positive market sentiment and a stronger economic outlook in the United Kingdom (UK). Economic prospects improved after the flash S&P Global/CIPS PMI revealed that activity in both the manufacturing and service sectors increased faster than predicted in August.
Declining bets on another interest rate decrease by the Bank of England (BoE) in September have also boosted the Pound Sterling’s appeal. The probability of this situation is minimal, given BoE officials expect inflation to rise again. Even as price pressures in the pipeline appear to be easing.

British store price inflation slowed substantially.

British store prices fell in August for the first time since October 2021, according to statistics from the British Retail Consortium (BRC) released on Tuesday. Non-food prices fell 1.5% due to decreased summer clothing sales, the largest reduction in three years. Food prices climbed at a reduced rate of 2.0%, the slowest increase since November 2021 and down from 2.3% in July.
A decrease in retail price inflation is unlikely to raise expectations of BoE interest rate cuts in September, as officials remain concerned about sticky price pressures in the service sector caused by wage constraints. However, it could fuel speculation of another rate cut before the end of the year.