According to recent trading, the exchange rate of the pound sterling against the dollar (GBPUSD) could be on its way to stopping a series of weekly losses if the gains achieved in the wake of the US personal consumption expenditures price index are maintained. In the last two trading sessions of last week, the GBP/USD currency pair recovered against the dollar to the level of 1.2271. It recovered from severe losses that the currency pair suffered in the same week, reaching the support level of 1.2110, its lowest level in seven months.

The price index - a key consumer-focused measure of US inflation with which the Federal Reserve is largely in tune - fell short of expectations in August. The core PCE index rose 0.1% month-on-month in August, below expectations of 0.2% and below 0.2% in July. On an annual basis, the index fell to 3.9% from 4.3%, which is in line with expectations.

They were affected by the report. The US dollar declined amid a slowdown in US bond yields and a downward shift in expectations to raise the federal interest rate again in 2023. Commenting on the report. “The US Federal Reserve’s preferred measure of inflation, the core personal consumption expenditures deflator, slowed in August to the slowest rate of increase since November 2020,” says Ali Jafri, economist at CIBC Capital Markets.

The data set revealed consumer spending rose 0.4% in August, which was below consensus expectations for a 0.5% increase and below last month's rise of 0.8%. Real spending rose 0.1% during the month with the PCE deflator rising 0.4%, mainly reflecting higher energy prices. US personal income came in slightly below consensus expectations at 0.4%.

The price of the US dollar rose in the wake of the Federal Reserve’s policy decision in September, where it set expectations to raise US interest rates again in 2023 and succeeded in retreating from market expectations regarding the size of interest rate cuts in 2024 in light of continued economic flexibility and caution over... That inflation may prove more persistent.

Personal consumption expenditures figures suggest that these concerns, although unlikely to completely disappear, can be mitigated.

Long-term US bond yields rose in the wake of the Fed's decision, a sign that markets were believing the Fed's message that US interest rates would remain high for a long period of time. Although PCE inflation numbers alone will not stop these market dynamics, they may be an important step toward confirming that the recent moves may be excessive.

Growth in Britain improved, the Office for National Statistics upgraded its previous estimates of growth in the UK economy after introducing more precise measurements and exposed households saw a slight rise in real disposable income. The UK economy grew by 0.6% year-on-year in the second quarter, up from the previous estimate of 0.4%, with first-quarter growth revised higher to 0.5% year-on-year. British growth in the second quarter remained at 0.2% on a quarterly basis, while the first quarter was revised upward from 0.1% to 0.3% on a quarterly basis. These changes come after the Office of National Statistics presented an upgrade to its methodology in line with global best practices on... As stipulated by the Organization for Economic Co-operation and Development.

Sterling forecast against the dollar today:

• Despite the recent rebound, the general trend of the GBP/USD currency pair is still bearish.
• There may be an opportunity to move towards the psychological support level of 1.2000 if US job numbers come in this week. US Federal Reserve officials’ statements are supportive of more US interest rate hikes.
• On the other hand, on the same daily chart, there will be no first break of the general downward trend without moving towards the resistance levels of 1.2330 and 1.2550, respectively.

Today, the currency pair will react to the announcement of the manufacturing PMI readings from Britain and the United States, then statements by US Central Bank Governor Jerome Powell.

(Click on image to enlarge)

More By This Author: