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Aug 11 - 11:55 AM

GBP/USD - COMMENT- Sterling Slides After US PPI Supports Soft-Landing View

By Paul Spirgel  —  Aug 11 - 10:15 AM

GBP/USD is clinging to a slight gain in early NorAm, though with a decidedly negative tone, which may keep GBP/USD bulls on the defensive after today's PPI data came in a touch warmer than forecast prodding traders to push out expected Fed rate cuts in 2024 as soft-landing expectations gain traction.

Though near-term Fed rate expectations, as exhibited on Eikon's IRPR page, continue to downplay further Fed rate hikes, action further out the curve as relates to a Fed shift to lower rates is gaining the attention of traders.

Note, after Thursday's CPI report rate cut expectations for March were at -20bps, pricing an 80% chance for a 25bp cut.
Those expectations have fallen to 46% after PPI data came in above forecast as the market downplays the effects of rate hikes on the economy and recession fears abate.

Converging U.S. and UK rates are boosting the dollar as the bulk of recent GBP strength in 2023 came amid diverging UK-U.S.
rate expectations.

With recent U.S. data hinting as a soft-landing, August 16's UK CPI will take on greater importance.
Should UK inflation continue to recede, lower BoE rate expectations may weigh further on GBP/USD putting the lower 30-day Bolli at 1.2584 and 200-DMA at 1.2351 in sharper focus.

For more click on FXBUZ

Refinitiv IFR Research/Market Commentary


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