British Pound drops to weekly lows below 1.3600 as US Dollar gathers momentum

The British Pound (GBP) extends losses for the second consecutive day on Thursday, as the US Dollar (USD) strengthens after the hot US inflation report released on Wednesday. The GBP/USD pair is trading at one-week lows at 1.3675 heading into the US session, opening more than 0.5% below Wednesday’s highs, in the mid-1.3600s.

US data released on Wednesday revealed that the Personal Consumption Expenditures (PCE) Price Index accelerated beyond expectations in July, with the yearly rate remaining steady at 3.7% against expectations of a mild decline. Likewise, core PCE inflation grew at a steady 3.3%, in both cases well above the Federal Reserve’s 2% target rate.

Markets await clearer Fed signals on September FOMC

These figures add pressure on the central bank to hike interest rates in the coming months, although bets for a September hike have remained unchanged at 36%, according to data by the CME’s FedWatch Tool.

Strategists at ING describe yesterday’s US data releases as “a mixed bag, offering some support to the dollar but failing to solve the market’s conundrum about the September FOMC (pricing now 9bp).”

Against that backdrop, ING says they “remain reasonably confident in our call for the Fed to hold on 16 September and, by extension, in a weaker dollar.” However, the bank cautions that “the next three weeks may need to bring a more convincing combination of data and Fedspeak before markets move closer to a hold outcome,” underscoring that current pricing still leaves room for hike expectations to shift.