Sterling trickles lower after US CPI dents aggressive Fed cut odds
GBP/USD extended its early NorAm weakness sliding to a session low at 1.2829 after in-line CPI trimmed hopes for a 50bp September Fed rate cut. However, given that the Fed is still expected to cut rates 25bps in September, and more than 100bps by year-end, sterling should remain well-bid.
With UK and U.S. CPI providing no significant deviations from market expectations, the pound is likely to remain anchored near current levels as the Fed is expected to match the UK's August 25bp cut in September.
With markets in summer mode it would seem unlikely the upcoming tier-2 data ahead of the Jackson Hole Symposium will sway traders to break ranges in either direction.
That said, today's UK CPI data indicated that CPI services, both year-over-year and month-over-month, moved lower while coming in below forecast. Some BoE doves may lean on this to ramp up expectations for a September 25bp cut.
Currently, LSEG's IRPR indicates a 40% chance for a September BoE cut. If UK GDP and output data on Aug 15 indicates even more weakness than is currently forecast, those September BoE rate cut odds are likely to rise, stirring U.S.-UK rate convergence. In that event, it may then prompt GBP/USD bears to test 55-DMA support at 1.2787 and the daily cloud top at 1.2734.
For more click on FXBUZ
GBP Chart: https://tmsnrt.rs/3SKcA7W
(Paul Spirgel is a Reuters market analyst. The views expressed are his own)
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