Title: GBP/USD stays with gains around 1.2180 despite higher consensus for US PCE Inflation
July 29, 2022 12:00 AM ET
The GBP/USD pair is moving back and forth within a narrow range of 1.2168-1.2183 in the Asian trading session. Over the past two weeks, the currency pair remained in the hands of the bulls after the US Dollar Index (DXY) slipped into negative territory on lower long-term inflation expectations. In the meantime, the DXY has dropped about 3% and is preparing for another downtrend as signs of a recession in the U.S. have intensified.
The DXY has broken through five-day support at 106.06, and a new monthly low appears imminent. In today's session, the release of the U.S. personal consumption expenditure (PCE) inflation rate will be the most important event. The Federal Reserve's (Fed) preferred inflation indicator is expected to rise from 6.3% to 6.7%.
Undoubtedly, further tightening of monetary policy is expected, as price pressures have not yet been exhausted. According to Fed Chairman Jerome Powell's comments, the target for interest rates is 3.5% by the end of 2022, suggesting that there is room for further rate hikes of 100 basis points (bps), as current rates stand at 2.25-2.50%.
In the UK, investors' attention will turn to the Bank of England's (BOE) interest rate decisions. BOE Governor Andrew Bailey is likely to raise rates further as inflation has risen to 9.4% and shows no signs of peaking yet. The continued upward momentum of price pressures in the UK could quickly increase to double digits.