• The Pound Sterling edges slightly up against the US Dollar, but a decline in bets that the Fed will opt for a large rate cut keeps the downside bias afloat.
• Investors see the BoE leaving interest rates unchanged at 5% at its September meeting.
• Market participants await the US PPI report for August.

The Pound Sterling (GBP) holds the late Wednesday’s recovery move from the psychological support of 1.3000 to near 1.3050 against the US Dollar (USD) in Thursday’s London session. However, the outlook of the GBP/USD pair is tilted to the downside as the US Dollar clings to gains near a fresh weekly high, with investors gaining confidence that the Federal Reserve (Fed) will start the policy-easing process with a 25-basis-points interest-rate cut.

The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, holds gains near 101.70. Investors have been speculating for weeks about the size of the upcoming Fed rate cut. Expectations for a small 25-basis-points interest-rate cut have strengthened after the Consumer Price Index (CPI) data for August, released on Wednesday, showed signs of some stickiness in inflationary pressures. 

Annual headline inflation came in lower than anticipated. However, the core inflation data  – which excludes volatile food and energy prices – remained sticky. Core inflation rose by 3.2% as expected, but the monthly figure grew by 0.3%, faster than the 0.2% anticipated.

Sticky US core inflation data significantly weighed on market expectations for sizable Fed rate cuts. According to the CME FedWatch tool, the probability of the Fed reducing interest rates by 50 basis points (bps) to 4.75%-5.00% in September has diminished to 13% from 40% a week ago.

In Thursday’s session, investors await the United States (US) Producer Price Index (PPI) data for August and the Initial Jobless Claims for the week ending September 6. Both reports will be published at 12:30 GMT. 

The headline producer inflation data is expected to have slowed further due to falling energy prices, while core figures are projected to have accelerated.