- The Pound Sterling exhibits weakness against the US Dollar as market speculation about the Fed’s interest rate path suggests that there will be only one rate cut for the entire year, in the November or December meeting. Expectations for the number of Fed rate cuts have declined to one from two after the US NFP report remained stronger than expected. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, rises further to 105.30.
- The next move in the US Dollar and the Pound Sterling will be guided by the US Consumer Price Index (CPI) data for May and the Fed’s monetary policy decision on Wednesday, and the United Kingdom (UK) Employment data for the February-April period on Tuesday.
- US annual core inflation, which strips off volatile food and energy prices, is estimated to have decelerated to 3.5% from the prior release of 3.6%, with headline figures growing steadily by 3.4%. Monthly headline CPI is expected to have risen at a slower pace of 0.2% from April’s reading of 0.3%, with core inflation maintaining the current pace of 0.3%.
- Meanwhile, the Fed is widely anticipated to hold interest rates steady in the range of 5.25%-5.50% for the seventh time in a row. In the press conference after the Fed’s policy decision, Fed Chair Jerome Powell may argue to keep interest rates higher until they get confidence that inflation will sustainably decline to the desired target rate of 2%.
- According to the consensus, the UK Employmnet report will show that the Unemployment Rate remained steady at 4.3%. Investors will also focus on Average Earnings, a measure of wage inflation that dictates consumer spending and is estimated to have grown steadily compared to the previous period. Bank of England (BoE) policymakers will keenly focus on the wage inflation measure, as it is a major driver of service inflation that has remained a key barrier for price pressures to return to the desired rate of 2%.
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