GBP/USD traded steadily around 1.3500 in Wednesday’s Asian session, building on a 0.5% gain from the previous day. The pair extended its advance as the US Dollar weakened following softer-than-expected US inflation data, fueling expectations for a Federal Reserve rate cut in September.
US CPI rose 2.7% year-on-year in July, matching June’s pace but falling short of the 2.8% forecast. Core CPI increased 3.1%, slightly higher than the 3% consensus, but slower than June’s 2.9% gain. According to the CME FedWatch tool, markets now price in a 94% chance of a September rate cut, up from 86% a day earlier. Fed Governor Michelle Bowman recently indicated that three cuts may be appropriate this year.
Sterling’s strength was supported by robust UK labour market data, which may allow the Bank of England to stick to its “gradual and careful” policy stance. UK Employment Change jumped by 239K in Q2, beating expectations and the previous 134K increase. The unemployment rate held steady at 4.7%, while July’s Claimant Count Change fell by 6.2K, defying forecasts of a 20.8K rise.
Traders now look ahead to Thursday’s UK preliminary Q2 GDP release and June factory output data for further direction.
