Photo by Colin Watts on Unsplash
 

• GBP/USD rose on Thursday, climbing as US Dollar flows reverse course.
• US CPI inflation rose in August, but the Fed is still barreling toward a September rate cut.
• The BoE is also racing toward a rate call next week, but UK rate cut odds are declining.

GBP/USD rallied over one-third of one percent on Thursday, bolstered by fresh US Dollar (USD) weakness as investors pile into bets that the Federal Reserve (Fed) will finally be pushed into a series of interest rate cuts through the rest of the year. Global markets are pivoting into waiting for next week’s Fed rate call, slated for September 17, with a Bank of England (BoE) rate call right behind the Fed that is unlikely to draw nearly as much attention.

Headline US CPI inflation rose again in August, with the annualized index rising to 2.9% and the monthly number accelerating to 0.4% as front-end inflationary pressure continues to build. Shelter and food prices were the largest drivers of near-term inflationary pressure, with the grocery items index rising 0.5% over a single month. Core CPI inflation, or headline inflation less energy and food prices, rose to 2.9% YoY, landing within median market forecasts.

Fed rate cut is pulling all market attention, and dragging down the Greenback
 

Despite another rise in key inflation pressure, August’s CPI inflation data wasn’t enough to derail market expectations for a Fed interest rate cut next week. According to the CME’s FedWatch Tool, interest rate futures traders are fully pricing in three rate cuts before the end of the year. A 25-basis-point cut is a foregone conclusion at the Federal Open Market Committee’s (FOMC) interest rate decision on September 17, and rate markets are pricing in nearly 95% odds that the Fed will deliver follow-up rate trims on October 29 and December 10.

University of Michigan (UoM) Consumer Sentiment Index data is due on Friday, but the datapoint is unlikely to result in any meaningful shifts in market sentiment. The aggregated survey index is expected to tick down to 58.0 from 58.2.

GBP/USD daily chart
 

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