The pound sterling rises to 1.2670 against the US dollar (USD) in the London session on Friday. GBP/USD is rising thanks to strong UK retail sales data and a moderate correction in the US Dollar. The US Dollar is falling as the recent decline in US inflation and retail sales data for May has led to increased bets that the Federal Reserve (Fed) will start cutting interest rates in September. However, the pair’s future direction tends to trend lower.
According to the CME FedWatch tool, 30-day fed funds futures data shows that there is a 64% chance of a rate cut in September. The CME FedWatch tool also shows that there will be two rate cuts this year versus the one that policymakers have announced in their latest forecasts.
The Bank of England (BoE) left its monetary policy parameters unchanged from its June meeting, as expected. However, the upbeat tone on inflation prevented the Pound from finding demand. On Thursday, the GBP/USD pair broke below 1.2700 and closed the day deep in negative territory. Early Friday, the pair consolidated its losses just above 1.2650. Meanwhile, the UK Office for National Statistics reported that retail sales rose 2.9% month-on-month in May. This value beat market expectations for a 1.5% increase by a wide margin.
Regarding the outlook for the dollar, the PMI composite index is expected to decline, although it is expected to remain above the 50 mark, which separates expansion from contraction, due to slowing growth in the manufacturing and service sectors. Since the PMI data provides an indication of the state of the economy and overall demand, a weak reading would indicate that the economy has exited the recovery, which would raise the stakes for a Fed rate cut in September.
