GBP Pummelled as US Inflation Data Triggers Rate Hike Expectations
The British Pound (GBP) extended its losses for the second consecutive day on Thursday as the US Dollar (USD) gained strength following the release of hot US inflation data. The GBP/USD pair dropped to one-week lows at 1.3675, opening over 0.5% below Wednesday's highs in the mid-1.3600s.
The Personal Consumption Expenditures (PCE) Price Index accelerated beyond expectations in July, with the yearly rate remaining steady at 3.7%, while core PCE inflation grew at a steady 3.3%. These figures exceeded the Federal Reserve's 2% target rate, putting pressure on the central bank to hike interest rates.
Despite this, bets for a September hike have remained unchanged at 36%, according to data by the CME's FedWatch Tool. Strategists at ING described yesterday's US data releases as 'a mixed bag', offering some support to the dollar but failing to solve the market's conundrum about the September FOMC.
Against this backdrop, ING remains reasonably confident in their call for the Fed to hold off on a rate hike in September and predicts a weaker dollar. However, they caution that 'the next three weeks may need to bring a more convincing combination of data and Fedspeak before markets move closer to a hold outcome', underscoring that current pricing still leaves room for hike expectations to shift.