- Pound Sterling trades lackluster around 1.2660 amid a quiet market mood as investors await the United States core PCE Price Index for January.
- The US core PCE Price Index data is expected to have risen by 0.4% monthly against a 0.2% increase in December. Investors anticipate that the underlying inflation data have decelerated to 2.8% annually against the former reading of 2.9%.
- The appeal for the US Dollar will strengthen if the core PCE Price Index data turns out stickier than expectations. This would allow Federal Reserve policymakers to lean towards keeping interest rates unchanged in the range of 5.25%-5.50% for a longer period.
- The US Dollar attracts higher foreign inflows if the Fed maintains a hawkish outlook on interest rates. The US Dollar Index (DXY), which gauges Greenback’s value against six major currencies, remains subdued around 103.80 in Thursday’s European session.
- The Fed’s preferred inflation data would significantly influence market expectations for the timing of rate cuts.
- On a broader note, the Pound Sterling is expected to outperform the US Dollar as investors hope that the Bank of England will pivot to rate cuts later than the Fed.
- Core consumer price inflation in the United Kingdom economy is at 5.1%, the highest in the Group of Seven economies, which would force BoE policymakers to maintain a hawkish monetary policy stance for a longer period.
- This week, BoE Deputy Governor Dave Ramsden said he wants to see how long inflation will remain persistent before considering a change in the monetary policy stance. In the last monetary policy meeting, Ramsden voted for holding interest rates at 5.25%.
- UK’s stubborn core inflation has been prompted by solid wage growth and high service inflation. However, annual shop price inflation has retreated to 2.5% in February due to weak growth in food items, the lowest since March 2022, which seems to offer some relief to households. The shop price index tracks price changes in food and non-food items.
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