Pound Drops as Core Inflation Surges, Trimming Rate Cut Hopes

The British pound weakened against the US dollar on Friday after the latest core Personal Consumption Expenditures (PCE) price index came in above market expectations. This increase in inflation has reduced the likelihood of an imminent Fed rate cut and boosted the greenback.

The core PCE price index rose by 0.4% month-over-month, exceeding the 0.3% forecast, while the annual rate held at 2.8%, unchanged from the previous month but above the 2.7% that economists had predicted.

This hotter-than-expected inflation print prompted traders to trim bets on a Fed rate cut in the coming months, supporting the US dollar across the board. The GBP/USD pair fell to approximately 1.2700 during the North American session, down from levels near 1.2750 earlier in the day.

The divergence in monetary policy expectations between the Fed and the Bank of England is a key driver of the exchange rate, with the pound under pressure due to domestic economic uncertainties.